WT/DS541/R  
 
31 October 2019  
(19-7313) Page: 1/113 
    
 
  INDIA – EXPORT RELAT ED MEASURES  
REPORT OF THE PANEL  
 
 WT/DS541/R  
 
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  TABLE OF CONTENTS  
1  INTRODUCTION  ................................ ................................ ................................ .........  13 
1.1  Complaint by the United States  ................................ ................................ ..................  13 
1.2  Panel establishment and composition  ................................ ................................ ..........  13 
1.3  Panel proceedings  ................................ ................................ ................................ .... 13 
1.3.1  General  ................................ ................................ ................................ .................  13 
1.3.2  Single substant ive meeting of the Panel with the parties  ................................ ...............  14 
1.3.3  Partially open meeting  ................................ ................................ .............................  15 
1.3.4  The Panel's terms of reference, the applicability of Article  4 of the SCM  Agreement,  
and the statement of available evidence  ................................ ................................ ..............  16 
2  FACTUAL ASPECTS  ................................ ................................ ................................ ..... 16 
3  PARTIES' REQUESTS F OR FINDINGS AND RECO MMENDATIONS  ................................ . 16 
4  ARGUMENTS OF THE PA RTIES  ................................ ................................ ....................  17 
5  ARGUMENTS OF THE TH IRD PARTIES  ................................ ................................ .........  17 
6  INTERIM REVIEW  ................................ ................................ ................................ ....... 17 
7  FINDINGS  ................................ ................................ ................................ ..................  17 
7.1  Burden of proof  ................................ ................................ ................................ ........  18 
7.1.1  Exceptions and excluding provisions  ................................ ................................ ..........  18 
7.1.1.1   The distinction between exceptions and excluding provisions  ................................ ...... 18 
7.1.1.2   Burden of proof under excluding provisions  ................................ ..............................  19 
7.1.1.3   Burden of raising excluding provisions  ................................ ................................ ..... 19 
7.2  Standard of proof  ................................ ................................ ................................ ..... 19 
7.3  Whether Article  27 of the SCM  Agreement excludes India from the scope of application of 
Articles  3 and 4 of the SCM  Agreement  ................................ ................................ ..............  19 
7.3.1  Relevant provisions  ................................ ................................ ................................ . 20 
7.3.2  Main arguments of the parties and third parties ................................ ...........................  21 
7.3.3  Analysis  ................................ ................................ ................................ ................  22 
7.3.3.1   Treaty interpretation  ................................ ................................ ............................  22 
7.3.3.2  Interpretation of Article  27.2(b) based on ordinary meaning, context, and object and 
purpose  ................................ ................................ ................................ ..........................  24 
7.3.3.2.1   Article  27.2(b)  ................................ ................................ ................................ .. 24 
7.3.3.2.2   Annex VII(b)  ................................ ................................ ................................ .... 25 
7.3.3.2.3   Article  27.4 ................................ ................................ ................................ ...... 27 
7.3.3.2.4   Article  27.5 ................................ ................................ ................................ ...... 27 
7.3.3.2.5   Object and purpose  ................................ ................................ ...........................  28 
7.3.3.2.6   Conclusion  ................................ ................................ ................................ ....... 29 
7.3.3.3   Supplementary means of interpretation  ................................ ................................ ... 29 
7.3.3.4   Conclusion on Article  27.2 and Article  3.1(a) of the SCM  Agreement  ............................  30 
7.3.3.5   Conclusion on Article  4 of the SCM Agreement  ................................ .........................  30 
7.4  Statement of available evidence  ................................ ................................ .................  30 
7.4.1  The applicable legal standard under Article  4.2 of the SCM  Agreement  ............................  30 WT/DS541/R  
 
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  7.4.2  Whether the statement of available evidence meets the requirements of Article  4.2 of  
the SCM  Agreement  ................................ ................................ ................................ .........  31 
7.5  The measures at issue  ................................ ................................ ..............................  39 
7.5.1  Export Oriented Units and Sector -Specific Schemes  ................................ .....................  39 
7.5.2  Export Promotion Capital Goods Scheme  ................................ ................................ .... 40 
7.5.3  Special Economic Zones Scheme  ................................ ................................ ...............  41 
7.5.4  Duty-Free Imports for Exporters Scheme  ................................ ................................ ... 43 
7.5.5  Merchandise Exports from India Scheme  ................................ ................................ .... 45 
7.6  Footnote 1 of the SCM  Agreement  ................................ ................................ ...............  46 
7.6.1  The applicable legal standard under footnote 1 ................................ ............................  46 
7.6.2  Whether the Export Oriented Units and Sector -Specific Schemes meet the conditions of 
footnote 1  ................................ ................................ ................................ .......................  49 
7.6.2.1   Whether the customs duty exemption meets the conditions of footnote 1 read together 
with Annex  I(i) ................................ ................................ ................................ ................  50 
7.6.2.1.1   The nature of cer tain goods covered by the exemptions  ................................ ..........  52 
7.6.2.1.2   "Any other items"  ................................ ................................ ..............................  55 
7.6.2.1.3   Goods imported " for creating a central facility"  ................................ ......................  55 
7.6.2.2   Whether the customs duty exemption meets the conditions of footnote 1 read together 
with Annex  I(g) ................................ ................................ ................................ ...............  56 
7.6.2.3   Whether the central excise duty exemption meets the conditions of footnote 1 read 
together with Annex  I(h) ................................ ................................ ................................ .. 56 
7.6.2.4   Conclusion  ................................ ................................ ................................ ..........  58 
7.6.3  Whether the customs duty exemption under the Export Promotion Capital Goods  
Scheme meets the conditions of footnote 1  ................................ ................................ ..........  58 
7.6.4  Whether the customs duty exemptions under the Duty -Free Imports for Exporters  
Scheme meet the conditions of footnote 1  ................................ ................................ ...........  60 
7.6.4.1   The nature of certain goods covered by the exemptions  ................................ .............  61 
7.6.4.2   Whether the imported goods must be used as inputs consumed in the production of an 
exported product  ................................ ................................ ................................ .............  62 
7.6.4.3   Conclusion  ................................ ................................ ................................ ..........  64 
7.6.5  Whether the Merchandise Exports from India Scheme meets the conditions of  
footnote 1  ................................ ................................ ................................ .......................  65 
7.6.5.1   Whether MEIS scrips meet the conditions of footnote 1 read together with Annexes  I(g) 
and I(h)  ................................ ................................ ................................ .........................  65 
7.6.5.2   Whether MEIS scrips meet the conditions of footnote 1 read together with Annex  I(i) .... 69 
7.6.5.3   Conclusion  ................................ ................................ ................................ ..........  69 
7.7  Revenue f oregone under Article 1.1(a)(1)(ii)  ................................ ................................  69 
7.7.1  The applicable legal standard under Article 1.1(a)(1)(ii)  ................................ ...............  70 
7.7.2  Whether India foregoes revenue otherwise due under the Export Oriented Units and  
Sector -Specific Schemes  ................................ ................................ ................................ ... 72 
7.7.2.1   First step:  Applicable treatment  ................................ ................................ .............  73 
7.7.2.2   Second step: Benchmark for comparison  ................................ ................................ . 73 
7.7.2.3   Third step: Comparison of the applicable treatment with the benchmark  ......................  74 
7.7.3  Whether India foregoes revenue otherwise due under the Export Promotion Capital  
Goods Scheme  ................................ ................................ ................................ ................  75 WT/DS541/R  
 
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  7.7.3.1   First step: Applicable treatment  ................................ ................................ .............  75 
7.7.3.2   Second step : Benchmark for comparison  ................................ ................................ . 76 
7.7.3.3   Third step: Comparison of the applicable treatment with the benchmark  ......................  76 
7.7.4  Whether India foregoes revenue otherwise due under the Special Economic  
Zones Scheme  ................................ ................................ ................................ .................  77 
7.7.4.1   The exemption from customs duties on imports and exports ................................ ....... 77 
7.7.4.1.1   First step: Applicable treatment  ................................ ................................ ...........  77 
7.7.4.1.2   Second step: Benchmark for comparison  ................................ ..............................  79 
7.7.4.1.3   Third step: Comparison of the applicable treatment with the benchmark  ...................  80 
7.7.4.2   The exemption from IGST  ................................ ................................ .....................  80 
7.7.4.2.1   First step: Applicable treatment  ................................ ................................ ...........  80 
7.7.4.2.2   Second step: Benchmark for comparison  ................................ ..............................  81 
7.7.4.2.3   Third step: Comparison of the applicable treatment with the benchmark  ...................  82 
7.7.4.3   The deduction from corp orate income tax  ................................ ................................  82 
7.7.4.3.1   First step: Applicable treatment  ................................ ................................ ...........  82 
7.7.4.3.2   Second step: Benchmark for comparison  ................................ ..............................  83 
7.7.4.3.3   Third step: Comparison of the applicable treatment with the benchmark  ...................  85 
7.7.5  Whether India foregoes re venue otherwise due under the Duty -Free Imports  
for Exporters Scheme  ................................ ................................ ................................ ....... 86 
7.7.5.1   First step: Applicable treatment  ................................ ................................ .............  86 
7.7.5.2   Second step: Benchmark for comparison  ................................ ................................ . 87 
7.7.5.3   Third step: Comparison of the applicable treatment with the benchmark  ......................  87 
7.8  Direct transfer of funds under Article 1.1(a)(1)(i)  ................................ ..........................  88 
7.8.1  The applicable legal standard under Article 1.1(a)(1)(i)  ................................ ................  88 
7.8.2  Whether MEIS involves a direct transfer of funds  ................................ .........................  89 
7.9  Benefit under Article 1.1(b) of the SCM  Agreement  ................................ ........................  91 
7.9.1  The applicable legal standard under Article 1.1(b)  ................................ .......................  91 
7.9.2  Whether the tax exemptions and deductions under the Export Oriented Units and  
Sector -Specific Schemes, Export Promotion Capital Goods Scheme, Special Ec onomic Zones 
Scheme, and Duty -Free Imports for Exporters Scheme, confer a benefit  ................................ .. 92 
7.9.3  Whether MEIS scrips confer a benefit  ................................ ................................ .........  94 
7.10  Export contingency under Articles 3.1(a) and 3.2 of the SCM  Agreement  ........................  96 
7.10.1   The applicable legal standard under Articles 3.1(a) and 3.2  ................................ .........  96 
7.10.2   Whether the subsidies granted under the Export Oriented Units and Sector -Specific 
Schemes are export contingent  ................................ ................................ ..........................  98 
7.10.3   Whether the subsidies granted under the Export Promotion Capital Goods Scheme are 
export contingent  ................................ ................................ ................................ ..........  100 
7.10.4   Whether the subsidies granted under the Special Economic Zones Scheme are export 
contingent  ................................ ................................ ................................ ....................  102 
7.10.5   Whether the subsidies granted under the Duty -Free Imports for Exporters Scheme are 
export contingent  ................................ ................................ ................................ ..........  107 
7.10.6   Whether the subsidies granted under the Merchandise Exports from India Scheme are 
export contingent  ................................ ................................ ................................ ..........  108 WT/DS541/R  
 
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  7.11  The Panel's duty under Article 12.11 of the DSU  ................................ .........................  109 
8  CONCLUSIONS  ................................ ................................ ................................ .........  110  
9  RECOMMENDATIONS  ................................ ................................ ................................  111  
 WT/DS541/R  
 
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  LIST OF ANNEXES  
ANNEX  A 
PANEL DOCUMENTS  
Contents  Page  
Annex  A-1 Working Procedures of the Panel  4 
Annex  A-2 Interim Review  10 
ANNEX B  
ARGUMENTS OF THE PAR TIES 
Contents  Page  
Annex  B-1 Integrated executive summary of the arguments of the United States  35 
Annex  B-2 Integrated executive summary of the arguments of India  46 
ANNEX C  
ARGUMENTS OF THE THIRD PARTIES  
Contents  Page  
Annex  C-1 Integrated executive summary of the arguments of Brazil  59 
Annex  C-2 Integrated executive summary of the arguments of Canada  63 
Annex  C-3 Integrated executive summary of the arguments of Egypt  67 
Annex  C-4 Integrated executive summary of the arguments of the European Union  69 
Annex  C-5 Integrated executive summary of the arguments of Japan  75 
Annex  C-6 Integrated executive summary of the arguments of Sri Lanka  78 
Annex  C-7 Integrated executive summary of the arguments of Thailand  80 
ANNEX D 
PRELIMINARY RULINGS AND OTHER  COMMUNICATIONS FROM  
THE PANEL TO THE PAR TIES 
Contents  Page  
Annex  D-1 Communication dated 22 January 2019 from the Panel to the parties 
concerning the issues of a single substantive meeting and a partially open 
meeting  84 
Annex  D-2 Communication dated 22 January 2019 from the Panel to the parties 
concerning the Panel's terms of reference, the applicability of Article 4 of the 
SCM Agreement  and the statement of available evidence  92 
Annex  D-3 Communication dated 16 April 2019 from the Panel to the parties concerning 
the Panel's Working Procedures and Timetable  116 
 
 WT/DS541/R  
 
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  CASES CITED IN THIS REPORT  
Short title  Full case title and citation  
Argentina – Footwear (EC)  Appellate Body Report, Argentina – Safeguard Measures on Imports of Footwear , 
WT/DS121/AB/R , adopted 12 January 2000, DSR 2000:I, p. 515  
Australia – Automotive 
Leather II  Panel Report, Australia – Subsidies Provided to Producers and Exporters of 
Automotive Leather , WT/DS126/R , adopted 16 June 1999, DSR 1999:III, p.  951 
Brazil – Aircraft  Appellate Body Report, Brazil – Export Financing Programme for Aircraft , 
WT/DS46/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1161  
Brazil – Aircraft  Panel Report, Brazil – Export Financing Programme for Aircraft , WT/DS46/R , 
adopted 20 August 1999, as modified by Appellate Body Report WT/DS46 /AB/R, 
DSR 1999:III, p. 1221  
Brazil – Taxation  Appellate Body Reports, Brazil – Certain Measures Concerning Taxation and 
Charges , WT/DS472/AB/R  and Add.1 / WT/DS497/AB/R  and Add.1, adopted 
11 January 2019  
Brazil – Taxation  Panel Reports, Brazil – Certain Measures Concerning Taxation and Charges , 
WT/DS472/R , Add.1 and Corr.1 / WT/DS497/R , Add.1 and Corr.1, adopted 
11 January 2019, as modified by Appellate Body Reports WT/DS472/AB/R / 
WT/DS497/AB/ R 
Canada – Aircraft  Appellate Body Report, Canada – Measures Affecting the Export of Civilian 
Aircraft , WT/DS70/AB/R , adopted 20 August 1999, DSR 1999:III, p. 1377  
Canada – Aircra ft Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft , 
WT/DS70/R , adopted 20 August 1999, upheld by Appellate Body Report 
WT/DS70/AB/R, DSR 1999:IV, p. 1443  
Canada – Aircraft 
(Article  21.5 – Brazil)  Panel Report, Canada – Measures Affecting the Export of Civilian Aircraft – 
Recourse by Brazil to Article 21.5 of the DSU , WT/DS70/RW , adopted 
4 August  2000, as modified by A ppellate Body Report WT/DS70/AB/RW, 
DSR 2000:IX, p. 4315  
Canada – Aircraft Credits 
and Guarantees  Panel Report, Canada – Export Credits and Loan Guarantees for Regional 
Aircraft , WT/DS222/R  and Corr.1, adopted 19 February 2002, DSR 2002:III, 
p. 849 
Canada – Autos  Appellate Body Report, Canada – Certain Measures Affecting the Automotive 
Industry , WT/DS139/AB/R , WT/DS142/AB/R , adopted 19 June 2 000, DSR 
2000:VI, p. 2985  
Canada – Autos  Panel Report, Canada – Certain Measures Affecting the Automotive Industry , 
WT/DS139/R , WT/DS142/R , adopted 19 June 2000, as modified by Appellate 
Body Report WT/DS139/AB/R, WT/DS142/AB/R, DSR 2000:VII, p. 3043  
Canada – Renewable  
Energy / Canada – Feed-in 
Tariff Program  Appellate Body Reports, Canada – Certain Measures Affecting the Renewable 
Energy Generation Sector / Canada – Measures Relating to the Feed -in Tariff 
Program , WT/DS412/AB/R  / WT/DS426/AB/R , adopted 24 May 2013, 
DSR 2013:I, p. 7  
China – Publications and 
Audiovisual Products  Appellate Body Report, China – Measures Affecting Trading Rights and 
Distribution Services for Certain Publications and Audiovisual Entertainment 
Products , WT/DS363/AB/R , adopted 19 January 2010, DSR 2010:I, p. 3  
EC – Chicken Cuts  Appellate Body Report, European  Communities – Customs Classification of 
Frozen Boneless Chicken Cuts , WT/DS269/AB/R , WT/DS286/AB/R , adopted 
27 September 2005, and Corr.1, DSR 2005:XIX, p. 9157  
EC – Computer Equipment  Appellate Body Report, European Communities – Customs Classification of 
Certain Computer Equipment , WT/DS62/AB/R , WT/DS67/AB/R , WT/DS68/AB/R , 
adopted 22 June 1998, DSR 1998:V, p. 1851  
EC – Hormones  Appellate Body Report, European Communities – Measures Concerning Meat and 
Meat Products (Hormones) , WT/DS26/AB/R , WT/DS48/AB/R , adopted 
13 February 1998, DSR 1998:I, p. 135  
EC and certain member 
States – Large Civil Aircraft  Appellate Body Report, European Communities and Certain Member States – 
Measures Affecting Trade in Large Civil Aircraft , WT/DS316/AB/R , adopted 
1 June 2011, DSR 2011:I, p. 7  WT/DS541/R  
 
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  Short title  Full case title and citation  
EC and certain member 
States – Large Civil Aircraft  Panel Report, European Communities and Certain Member States – Measures 
Affecting Trade in Large Civil Aircraft , WT/DS316/R , adopted 1 June 2011, as 
modified by Appellate Bo dy Report WT/DS316/AB/R, DSR 2011:II, p. 685  
EC – Tariff Preferences  Appellate Body Report, European Communities – Conditions for the Granting of 
Tariff Preferences to Developing Countries , WT/DS246/AB/R , adopted 
20 April 2004, DSR 2004:III, p. 925  
EU – PET (Pakistan)  Appellate Body Report, European Union – Countervailing Measures on Certain 
Polyethylene Terephthalate  from Pakistan , WT/DS486/AB/R  and Add.1, adopted 
28 May 2018  
EU – PET (Pakistan)  Panel Report, European Union – Countervailing Measures on Certain 
Polyethylene Terephthalate  from Pakistan , WT/DS486/R , Add.1 and Corr.1, 
adopted 28 May 2018, as modified by Appellate Body Report WT/DS486/AB/R  
Guatemala – Cement I  Appellate Body Report, Guatemala – Anti-Dumping Investigation Regarding 
Portland Cement from Mexico , WT/DS60/AB/R , adopted 25 November 1998, 
DSR 1998:IX, p. 3767  
India – Patents (US)  Appellate Body Report, India – Patent Protection for Pharmaceutical and 
Agricultural Chemical Products , WT/DS50/AB/R , adopted 16 January 1998, DSR 
1998:I, p. 9  
Indonesia – Autos  Panel Report, Indonesia – Certain Measures Affecting the Automobile Industry , 
WT/DS54/R , WT/DS55/R , WT/DS59/R , WT/DS64/R , Corr.1  and Corr.2, adopted 
23 July 1998, and Corr.3 and Corr.4, DSR 1998:VI, p. 2201  
Japan – Alcoholic 
Beverages II  Appellate Body Report, Japan – Taxes on Alcoholic Beverages , WT/DS8/AB/R , 
WT/DS10/AB/R , WT/DS11/AB/R , adopted 1 November 1996, DSR 1996:I, p.  97 
Japan – Apples  Appellate Body Report, Japan – Measures Affecting the Importation of Apples , 
WT/DS245/AB/R , adopted 10 December 2003, DSR 2003:IX, p. 4391  
Japan – DRAM s (Korea)  Appellate Body Report, Japan – Countervailing Duties on Dynamic Random 
Access Memories from Korea , WT/DS336/AB/R  and Corr.1, adopted 
17 December 2007, DSR 2007:VII, p. 2703  
Korea – Commercial 
Vessels  Panel Report, Korea – Measures Affecting Trade in Commercial Vessels , 
WT/DS273/R , adopted 11 April 2005, DSR 2005:VII, p. 2749  
Korea – Dairy  Appell ate Body Report, Korea – Definitive Safeguard Measure on Imports of 
Certain Dairy Products , WT/DS98/AB/R , adopted 12 January 2000, DSR  2000:I, 
p. 3 
Peru – Agricultural Products  Appellate Body Report, Peru – Additional Duty on Imports of Certain Agricultural 
Products , WT/DS457/AB/R  and Add.1, adopted 31 July 2015, DSR  2015:VI, 
p. 3403 
US – Anti-Dumping and 
Countervailing Duties 
(China)  Appellate Body Report, United States – Definitive Anti -Dumping and 
Countervailing Duties on Certain Products from China , WT/DS379/AB/R , adopted 
25 March 2011, DSR 2011:V, p. 2869  
US – Continued Z eroing  Appellate Body Report, United States – Continued Existence and Application of 
Zeroing Methodology , WT/DS350/AB/R , adopted 19 February 2009, 
DSR 2009:III, p. 1291  
US – FSC Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" , WT/DS108/AB/R , adopted 20 March 2000, DSR 2000:III, p.  1619 
US – FSC Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" , 
WT/DS108/R , adopted 20 March 2000, as modified by Appellate Body Report 
WT/DS108/AB/R, DSR 2000:IV, p. 1675  
US – FSC (Article 21.5 – EC) Appellate Body Report, United States – Tax Treatment for "Foreign Sales 
Corporations" – Recourse to Article 21.5 of the DSU by the European 
Communities , WT/DS108/AB/RW , adopted 29 January 2002, DSR 2002:I, p.  55 
US – FSC (Article 21.5 – EC) Panel Report, United States – Tax Treatment for "Foreign Sales Corporations" – 
Recourse to Article 21.5 of the DSU by the European Communities , 
WT/DS108/RW , adopted 29 January 2002, as modified by Appellate  Body Report 
WT/DS108/AB/RW, DSR 2002:I, p. 119  
US – Gasoline  Appellate Body Report, United States – Standards for Reformulated and 
Conventional Gasoline , WT/DS2/AB/R , adopted 20 May 1996, DSR 1996:I, p.  3 
US – Large Civil Aircraft 
(2nd complaint)  Appellate Body Report, United States – Measures Affecting Trade in Large Civil 
Aircraft (Second Complaint) , WT/DS353/AB/R , adopted 23 March 2012, 
DSR 2012:I, p. 7  WT/DS541/R  
 
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  Short title  Full case title and citation  
US – Large Civil Aircraft 
(2nd complaint)  Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) , WT/DS353/R , adopted 23 March 2012, as modified by 
Appellate Bod y Report WT/DS353/AB/R, DSR 2012:II, p. 649  
US – Large Civil Aircraft 
(2nd complaint) 
(Article  21.5 – EU) Panel Report, United States – Measures Affecting Trade in Large Civil Aircraft 
(Second Complaint) – Recourse to Article 21.5 of the DSU by the 
European  Union , WT/DS353/RW  and Add.1, adopted 11 April 2019, as modified 
by Appellate Body Report WT/DS353/AB/RW  
US – Softwood Lumber IV  Appellate Body Report, United States – Final Countervailing Duty Determination 
with Respect to Certain Softwood Lumber from Canada , WT/DS257/AB/R , 
adopted 17 February 2004, DSR 2004:II, p. 571  
US – Tax Ince ntives  Appellate Body Report, United States – Conditional Tax Incentives for Large Civil 
Aircraft , WT/DS487/AB/R  and Add.1, adopted 22 September 2017, DSR  2017:V, 
p. 2199  
US – Tax Incentives  Panel Report, United States – Conditional Tax Incentives for Large Civil Aircraft , 
WT/DS487/R  and Add.1, adopted 22 September 2017, as modified by Appellate 
Body Report WT/DS487/AB/R, DSR 2017:V, p. 2305  
US – Upland Cotton  Appellate Body Report, United States – Subsidies on Upland Cotton , 
WT/DS267/AB/R , adopted 21 March 2005, DSR 2005:I, p. 3  
US – Upland Cotton  Panel Report, United States – Subsidies on Upland Cotton , WT/DS267/R , Add.1  
to Add.3 and Corr.1, adopted 21 March 2005, as modified by Appellate  Body 
Report WT/DS267/AB/R, DSR 2005:II, p. 299  
US – Wool Shirts and 
Blouses  Appellate Body Report, United States – Measure Affecting Imports of Woven 
Wool Shirts and Blouses from India, WT/DS33/AB/R , adopted 23 May 1997, and 
Corr.1, DSR 1997:I, p. 323  WT/DS541/R  
 
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  LIST OF EXHIBITS  
Exhibit  Short Title  
(if any)  Description  
IND-7  WTO, Negotiating group on Rules, Amendment to Articles 27.2 and 
27.4 of the ASCM in relation to developing countries covered under 
Annex VII, Communication from the Plurinational State of Bolivia, 
Egypt, Honduras, India, and Sri Lanka, TN/RL/GEN/177/Rev.1 
(9 March 2011)  
IND-9 General Council 
decision WT/L/384  WTO, General Council Decision on Implementation -Related Issues 
and Concerns of 15 December 2000, and the report thereon of the 
Chairman of the Committee on Subsidies and Countervailing 
Measures of 3 August 2001, WT/L/384  
IND-10 SCM Committee 
decision 
G/SCM/34  WTO, Committee on Subsidies and Countervailing Measure s, 
"Chairman's  Report on the Implementation -Related Issues referred 
to the Committee on Subsidies and Countervailing Measures in the 
15 December  2000 Decision of the General Council", G/SCM/34 
(3 August  2001)  
IND-11 Council for Leather 
Exporters 
Guidelines  "Council for Leather Export ers: Duty Free Import Scheme - An 
Introduction", CLE -HO/POL/DFIS/2018 -19 (22 March 2018)  
IND-14  The Integrated Goods and Services Tax Act, 2017  
IND-21  Letter dated 16 March 2017 from the GOI to an enterprise to be set 
up as EOU  
IND-22 2019 Amendment 
to the SEZ Rules   Indian Ministry of Commerce and Industry, Department of 
Commerce, Special Economic Zones (amendment) Rules (7 March 
2019)  
IND-23  Income Tax Act (1961) as amended  
USA-3 Foreign Trade 
Policy  Indian Ministry of Commerce and Industry, Department of 
Commerce, Foreign Trade Policy, Notification No. 01/2015 -2020 
(1 April 2015); Mid -Term Review, Notification No.  41/2015 -2020 
(5 December 2017)  
USA-4  "Export Champions", The Economic Times , (12 February 2018)  
USA-5 Handbook of 
Procedures  Indian Ministry of Commerce and Industry, Department of 
Commerce, Handbook of Procedures, Public Notice 
No. 01/2015 -2020, (1 April 2015); updated by Public Notice 
No. 43/2015 -2020 (5 December 2017)  
USA-6 Appendices and 
Aayat Niryat forms  Indian Ministry of Commerce and Industry, Department of 
Commerce,  Appendices and Aayat Niryat Forms of FTP 2015 -2020 
(1 April 2015 -31 March 2020)  
USA-7  Excerpt from Customs Tariff Act (1975) as amended  
USA-8  Customs Act (1962) as amended, Section 12 to Section 15  
USA-11 Public Notice 
2/2015 -2020 Indian Ministry of Commerce and Industry, Department of 
Commerce, Public Notice No. 2/2015 -2020, MEIS, schedule of 
country group, ITC (HS) code wise list of products with reward rates 
under Appendix 3B (1  April 2015)  
USA-20  Excerpt from highlights of the Foreign Trade Policy Review, 
2015-2020, mid -term review (December 2017)  
USA-22 SEZ Act  Ministry of Law and Justice, Special Economic Zones Act, 2005 
No. 28 of 2005, Gazette of India, Extraordinary Part II Section I 
(23 June 2005)  
USA-23 Annual 
Supplement 
2013-2014 to the 
Foreign Trade 
Policy 2009 -2014 Address by Shri Anand Sharma, Minister of Commerce, Industry and 
Textiles at the Release of Annual Supplement 2013 -2014 to the 
Foreign Trade Policy 2009 -2014 (18 April 2013)  
USA-24  Nirmala  Sitharaman, "SEZ Scheme of India is Quite 
Comprehensive", Daily News and Analysis  (20 December 2014)  
USA-27 Notification 
No. 15/2017  Indian Ministry of Finance, Department of Revenue, Notification 
No. 15/2017, integrated tax (rate) (30 June 2017)  
USA-28 SEZ Rules  Indian Ministry of Commerce and Industry, Special Economic Zones 
Rules, incorporating amendments up to July 2010 
(10 February  2006)  WT/DS541/R  
 
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  Exhibit  Short Title  
(if any)  Description  
USA-29 Income Tax Act, 
1961, Sections 
10A and 10AA  Excerpt from Income Tax Act (1961) as amended, Sections 10A and 
10AA  
USA-30 Income Tax Act, 
1961, Section 80A  Excerpt from Income Tax Act (1961) as amended, Section 80A  
USA-31 Customs Tariff Act  Excerpt from Customs Tariff Act (1975) as amended, 
Second  Schedule  
USA-32 Integrated Goods 
and Services Tax 
Act Indian Ministry of Law and Justice, Integrated Goods and Services 
Tax Act, Gazette of India, part II, section 1 (12 April 2017)  
USA-35 Export Promotion 
Schemes  Indian Ministry of Electronics and Information Technologies, website 
information about Export Promotion Schemes (accessed 
7 December 2018)  
USA-36 Notification 
No. 50/2017  Indian Ministry of Finance, Department of Revenue, Notification 
No. 50/2017 -Customs (30 June 2017)  
USA-38  Excerpts from Notification No. 50/2017  
USA-55 MIS Report on 
Export Promotion 
Schemes  Excerpt from Indian Ministry of Commerce and Industry, 
Department of Commerce, MIS Report on Export Promotion 
Schemes 2017 (31 May 2017)  
USA-56 Ministry of 
Commerce and 
Industry 
Department of 
Commerce, 
Annual Report, 
2017-2018 Excerpt from Indian Ministry of Commerce and Industry Department 
of Commerce, Annual Report, 2017 -2018 
USA-57  Scripbazaar website (accessed 9 October 2018)  
USA-60 2018 Amendment 
to the SEZ Rules  Indian Ministry of Commerce and Industry, Department of 
Commerce, Notification No. G.S.R. 909(E) Special Economic Zones 
(amendment) Rules (19 September 2018)  
USA-62  Excerpt from Central Excise Tariff Act of 1985, as amended  
USA-63  Excerpt from Central Excise Tariff Act, 1985, First Schedule (Central 
Excise Tariff 2016 -2017), updated 2 February 2017, and 
subsequent notifications and rate changes  
USA-65  Indian Ministry of Finance, Department of Revenue website, Rates 
of Goods and Services Tax (accessed 14 March 2019)  
USA-84  Income Tax Act (1961) as amended  
USA-85  Highlights of the Foreign Trade Policy Review, 2015 -2020, mid -term 
review (December 2017)  
USA-87  Customs Tariff Act (1975) as amended  
USA-88  Central Excise Act (1944) as amended  
USA-89  Excerpt from Customs Tariff Act (1975) as amended, First Schedule  
USA-90  Food Shark Marfa website, at 
https://www.foodsharkmarfa.com/best -meat-tenderizers/  (last 
visited 18 July 2019)  
 WT/DS541/R  
 
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  ABBREVIATIONS USED I N THIS REPORT  
Abbreviation  Description  
BTP Bio-Technology Parks  
CIF cost insurance freight  
DFIS Duty-Free Imports for Exporters Scheme  
DSB Dispute Settlement Body  
DSU Understanding on Rules and Procedures Governing the Settlement of Disputes  
DTA domestic tariff area  
EHTP Electronics Hardware Technology Park  
EOU Export Oriented Units  
EPCG  Export Promotion Capital Goods  
FOB free on board  
FTP Foreign Trade Policy  
GATT 1994  General Agreement on Tariffs and Trade 1994  
GNP gross national product  
HBP Handbook of procedures  
Highlights  Highlights of the Foreign Trade Policy 2015 2020 Mid Term Review (5 December 2017)  
IGST Integrated Goods and Services Tax  
ITC Indian Tariff Code  
MEIS Merchandise Exports from India Scheme  
MSME  micro, small & medium enterprises  
Press Release  Release of the Mid Term Review of Foreign Trade Policy 2015 -2020 – Annual Incentives 
Increased by 2% amounting to over Rs 8,000 crore for Labour Intensive/MSME sectors 
(5 December 2017)  
NFE net foreign exchange  
SAE statement of available evidence  
SCM Agreement  Agreement on Subsidies and Countervailing Measures  
SCM Committee  Committee on Subsidies and Countervailing Measures  
SEZ Special Economic Zones  
SEZ Act  Special Economic Zones Act  
SEZ Rules  Special Economic Zones Rules  
STP Software Technology Park  
Vienna Convention  Vienna Convention on the Law of Treaties, Done at Vienna, 23 May 1969, 1155  UNTS 
331; 8 International Legal Materials 679  
WTO World Trade Organization  
 
 WT/DS541/R  
 
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  1  INTRODUCTION  
1.1  Complaint by the United States  
1.1.  On 14 March 2018 , the United States requested consultations with India pursuant to 
Articles  1 and 4 of the Understanding on Rules and Procedures Governing the Settlement of 
Disputes (DSU) and Articles  4 and 30 of the Agreement on Subsidies and Countervailing Measures 
(SCM Agreement ) with regard to certain alleged export subsidy measures of India.1 
1.2.  Consultat ions were held on 11 April 2018 but failed to resolve the dispute.  
1.2  Panel establishment and composition  
1.3.  On 17 May 2018 , the United States requested the establishment of a panel pursuant to 
Article  6 of the DSU and Article 4.4 of the SCM Agreement  with stan dard terms of reference in 
document WT/DS 541/4.2 At its meeting on 28 May 2018 , the Dispute Settlement Body (DSB) 
established a panel pursuant to the request of the United States , in accordance with Article  6 of 
the DSU and Article  4.4 of the SCM Agreement .3 
1.4.  The Panel's terms of reference are the following:  
To examine, in the light of the relevant provisions of the covered agreements cited by 
the parties to the dispute, the matter referred to the DSB by the United States in 
document WT/DS541/4 and to make s uch findings as will assist the DSB in making 
the recommendations or in giving the rulings provided for in those agreements.4 
1.5.  On 16 July 2018 , the United States requested the Director -General to determine the 
composition of the panel, pursuant to Article 8 .7 of the DSU and Article 4.12 of the 
SCM Agreement . On 23 July 2018 , the Director -General accordingly composed the Panel as 
follows5: 
Chairperson : Mr Jose Antonio S. Buencamino  
 
Members:   Ms Leora Blumberg  
   Mr Serge Pannatier  
 
1.6.  Brazil, Canada, China, Egy pt, the European Union, Japan, Kazakhstan, the Republic of Korea, 
the Russian Federation, Sri Lanka, Chinese Taipei, and Thailand  notified their interest in 
participating in the Panel proceedings as third parties.  
1.3  Panel proceedings  
1.3.1   General  
1.7.  After consultation with the parties, the Panel adopted its Working Procedures6 and timetable 
on 22 August 2018.  
1.8.  The United States and India submitted their first written submissions on 23 August and 
20 September 2018, respectively, and their second written submi ssions on 11 October and 
1 November 2018, respectively. The Panel held a substantive meeting with the parties on 12 and 
13 February 2019. A session with the third parties took place on 13 February 2019. On 14  May 
2019, the Panel issued the descriptive part  of its Report to the parties. The Panel issued its Interim 
 
1 Request for consultations by the United States, WT/DS541/1 -G/SCM/D119/1  (United States' request 
for consultations ). 
2 Request for the establishment of a panel by the United States, WT/ DS541/4  (United States' panel 
request).  
3 Dispute Settlement Body, Minutes of Meeting held on 28 May 2018, WT/DSB/ M/413, para. 7.7.  
4 Constitution note of the Panel, WT/DS541/5.  
5 Constitut ion note of the Panel, WT/DS541/5.  
6 See the Panel's Working Procedures in Annex A -1. WT/DS541/R  
 
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  Report to the parties on 28 August 2019. The Panel held an interim review meeting with the 
parties on 16  September 2019 and  issued its Final Report to the parties on 30 September 2019.  
1.3.2   Single subs tantive meeting of the Panel with the parties  
1.9.  On 3 August 2018, the Chairperson of the Panel, on behalf of the Panel, held a meeting with 
the parties to obtain their views in preparation of the Panel's  draft Working Procedures and 
timetable. He stressed th e need to reconcile different considerations, namely, the provision for 
accelerated procedures in Article  4 of the  SCM Agreement , the obligation to provide special and 
differential treatment to developing country Members, and resource constraints in the Se cretariat. 
At that meeting, the United  States proposed that the Panel hold a single meeting with the parties 
in this case, a proposal which India opposed.  
1.10.  As a means to balance the competing obligations and constraints in the particular 
circumstances of th is case, in its draft Working Procedures and timetable sent to the parties on 
8 August 2018, the Panel proposed holding a single meeting with the parties, after the filing of 
both parties'  first and second written submissions7, and reserved the right to sc hedule further 
meetings with the parties as required.8 On 22 August 2018, the Panel adopted its draft Working 
Procedures  and timetable.  In response to communications from India to the Chairperson9, on 9 
and 19  October  2018 the Panel confirmed that it would  proceed with the adopted Working 
Procedures  and timetable , while reserving the right to schedule additional meetings as 
necessary.10 On 19  October 2018, the Panel indicated that it would communicate the reasons 
supporting its decision in due course.11 
1.11.  India objected to the Panel's  approach in its comments on the draft Working Procedures and 
timetable12, comments on the United  States'  comments13, first written submission14, and in 
communications dated 5 October and 16 October 201815, and sought a preliminary ruli ng from the 
Panel that an additional substantive meeting with the parties should be held before the filing of the 
second written submissions.16 
1.12.  In its own communications, the United  States took the view that the Panel could hold a 
single substantive meeting with the parties, or even decide the case entirely on the basis of the 
parties'  written submissions, without holding any substantive meeting with the parties.17 The 
United  States set out its arguments on the matter in its comments on the  draft Working 
Procedures and timetable18, comments on India's  comments19, and second written submission.20 
1.13.  Brazil commented on this matter in its third -party submission.  In Brazil's view, a 
panel's  decision to deviate from the working procedures set out in A ppendix 3 to the DSU and hold 
 
7 Draft Working Procedures (8 August 2018), paras.  3, 5, and 15 -16; Draft timetable (8 August 2018).  
8 Draft timetable (8 August 2018), fn  1. 
9 Communication dated 5 Octo ber 2018 from India to the Chairperson of the Panel; Communication 
dated 16 October 2018 from India to the Chairperson of the Panel.  
10 Communication dated 9 October 2018 from the Panel to the parties and third parties; Communication 
dated 19 October 2018 f rom the Panel to the parties and third parties.  
11 Communication dated 19 October 2018 from the Panel to the parties and third parties.  
12 Communication dated 14 August 2018 from India to the Chairperson of the Panel, paras.  1-2 and 5 -7. 
13 Communication date d 17 August 2018 from India to the Chairperson of the Panel, paras.  1-15. 
14 India's  first written submission , paras.  16-18 and 105 -116. 
15 Communication dated 5 October 2018 from India to the Chairperson of the Panel; Communication 
dated 16 October 2018 from India to the Chairperson of the Panel.  
16 India's  first written submission, paras.  18 and 105 -115; Communication dated 5 October 2018 from 
India to the Chairperson of the Panel, pp. 1-4. See also Communication dated 16 October 2018 from India to 
the Ch airperson of the Panel, p. 2.  
17 Communication dated 14 August 2018 from the United  States to the Chairperson of the Panel, 
paras.  4-7; Communication dated 17 August 2018 from the United  States to the Chairperson of the Panel, 
para. 1. 
18 Communication dated  14 August 2018 from the United  States to the Chairperson of the Panel, 
paras.  1-7. 
19 Communication dated 17 August 2018 from the United  States to the Chairperson of the Panel, 
paras.  1-8. 
20 United  States'  second written submission, paras.  45-52. WT/DS541/R  
 
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  a single substantive meeting with the parties should only happen with the agreement of both 
parties to the dispute.21 
1.14.  On 22 January 2019, the Panel, as it had anticipated, communicated the reasons for its 
earlier decision  to proceed with the adopted Working Procedures and timetable, while reserving 
the right to schedule additional meetings , as necessary  (see Annex D -1). 
1.15.  During the substantive meeting with the parties and subsequently in writing, the Panel 
asked the parties whether they considered a second substantive meeting necessary.22 On both 
occasions, it also asked India whether and how concretely the fact of holding a single substantive 
meeting affected India's ability to defend itself.23 The parties responded to  these questions on 
4 March 2019 and commented on each other's responses on 18  March 2019. Having studied the 
parties' responses and comments24, and in light of the proceedings thus far, the Panel did not 
consider that there was a need to depart from the st ructure of the proceedings as originally 
envisaged in this dispute by adding a second substantive meeting with the parties; the Panel 
communicated its decision to the parties on 16  April 2019.25 
1.3.3   Partially open meeting  
1.16.  On 8 August 2018, the Panel transmitted  the draft Working Procedures to the parties, 
pursuant to which the Panel would "meet in closed session".26 On 14 August 2018, the United 
States requested the Panel to  open the meeting(s) with the parties to the public , either in whole or 
in part.27 On 17 Au gust 2018, India "completely oppose[d]" the United States' request.28 
1.17.  In the Working Procedures adopted on 22 August 2018, the Panel indicated that it would 
"revert to this issue in due course before the date of [its] meeting" with the parties.29 
1.18.  On 3 Januar y 2019, the Panel invited the third parties to express their views on holding a 
partially open meeting. Canada, China, the European Union, and Japan considered panels to have 
discretion to hold a partially open meeting. China and Thailand expressed concern  about granting 
a request for a partially open meeting without the consent of both parties to the dispute. In the 
event that the Panel held a partially open meeting, Brazil, Canada, the European Union, and Japan 
agreed to  open their statements to the publi c.30 China, Egypt, the Russian  Federation, and 
Sri Lanka  indicated their intention to keep their respective statements confidential.31 
1.19.  By communication dated 22 January 201932, the Panel declined the United States' request 
for a partially open meeting.  
 
21 Brazil' s third -party submission, paras. 27 -32. 
22 Panel question No. 91.  
23 Panel question No. 92(a) -(c). 
24 Including the parties' responses and comments to all other questions the Panel had asked during and 
after the hearing, which India had indicated would themse lves require an additional substantive meeting with 
the parties.  
25 Communication dated 16 April 2019 from the Panel to the parties concerning the Panel's Working 
Procedures and Timetable , (Annex D -3). 
26 Draft Working Procedures (8 August 2018), para. 10.  
27 Communication  dated  14 August 2018  from the United States  to the Chairperson of the Panel , 
para. 18. See also, ibid. paras. 11 -17. 
28 Communication  dated  17 August 2018  from India to the Chairperson of the Panel , para. 21. See also, 
ibid. paras. 22 -26. 
29 Working Procedures (22 August 2018), para. 10.  
30 Communication dated 11 January 2019 from Brazil to the Panel; Communication dated 
11 January  2019 from Canada to the Panel; Communication dated 11 January 2019 from the European Union 
to the Panel; and Commu nication dated 11 January 2019 from Japan to the Panel.  
31 Communication dated 11 January 2019 from China to the Panel; Communication dated 
11 January  2019 from Egypt to the Panel; Communication dated 11 January 2019 from the Russian Federation 
to the Panel; and Communication dated 11 January 2019 from Sri Lanka to the Panel.  
32 Communication dated 22 January 2019 from the Panel to the parties concerning the issues of a single 
substantive meeting and a partially open meeting  (Annex D -1), paras. 3.1 -3.16.  WT/DS541/R  
 
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  1.3.4   The Pa nel's terms of reference, the applicability of Article  4 of the 
SCM Agreement , and the statement of available evidence  
1.20.  In its first written submission, India requested the Panel to issue a preliminary ruling to the 
effect that (a) the United States' panel request does not meet the requirements of Article 6.2 of 
the DSU  with respect to both the identification of the specific measures at issue and the summary 
of the legal basis of the United States' complaint ; (b)  the provisions of Article 4 of the 
SCM Agreem ent could not, at th at stage  of the proceedings , apply to the dispute before the Panel; 
and (c)  the statement of available evidence in the United  States'  request for consultations does not 
meet the requirements of Article 4.2 of the SCM Agreement .33 
1.21.  In its second written submission, the United States disagreed with India's request on all 
counts.34  
1.22.  In a communication of 22 January 2019, the Panel ruled that the United States' panel 
request  meets the requirements of Article 6.2 of the DSU .35 It however declined  to rule, at that 
stage, on the applicability of Article 4 of the SCM Agreement36 and the conformity of the statement 
of available evidence with Article 4.2 of the SCM Agreement .37 The Panel rules on these matters in 
this Report.  
2  FACTUAL ASPECTS  
2.1.  This dispute concerns t he United States'  challenge  of the following schemes maintained by 
India:  
a. the Export Oriented Units (EOU) Scheme and Sector -Specific Schemes, including the 
Electronics  Hardware Technology Parks (EHTP) Scheme and the Bio -Technology Parks 
(BTP) Scheme (the EOU/EHTP/BTP Schemes);  
b. the Merchandise Exports from India Scheme (MEIS);  
c. the Export Promotion Capital Goods (EPCG) Scheme;  
d. the Special Economic Zones (SEZ) Scheme; and  
e. the Duty -Free Imports for Exporters Scheme (DFIS).  
2.2.  These measures provide for certain exemptions from, or reductions of, customs duties or 
taxes, or for the granting by the government of freely transferable "scrips" to be used to satisfy 
certain liabilitie s vis-à-vis the government.  
2.3.  Section 7.5 below outlines key characteristics of the five schemes at issue.  
3  PARTIES' REQUESTS FO R FINDINGS AND RECOM MENDATIONS  
3.1.  The United  States requests that the Panel find that each of the challenged measures is a 
prohibited export subsidy inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . The 
United  States further requests, pursuant to Article 4.7 of the SCM Agreement , that the Panel 
 
33 India's first written submission, paras. 19 -70. 
34 United St ates' second written submission, paras. 11 -52. 
35 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM  Agreement and the statement of available evidence  
(Annex  D-2), paras. 2.1 -2.126.  
36 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM  Agreement and the statement of available evidence  
(Annex  D-2), paras. 3.1 -3.13. 
37 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM  Agreement and the statement of available evidence  
(Annex  D-2), paras. 4.1 -4.8. WT/DS541/R  
 
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  recommend that India withdraw the subsidies within 90 days from the date the DSB adopts its 
recommendations.  
3.2.  India requests the Panel to find that Article 3 of the SCM Agreement  does not apply to India 
by virtue of Article 27.2(b) granting India an eight -year exemption period from India's 
Annex  VII(b) graduation. India also requests that the Panel find that, in any event, the challenged 
schemes are not export subsidies and are not inconsistent with Articles 3.1(a) and 3.2 of the 
SCM Agreement . Mor eover, India requests the Panel to find that the dispute could not be subject 
to Article 4 of the SCM Agreement  or, in the alternative, to dismiss the dispute due to the 
insufficiency of the statement of available evidence under Article 4.2 of the SCM Agreement . 
4  ARGUMENTS OF THE PAR TIES  
4.1.  The arguments of the parties are reflected in their executive summaries, provided to the 
Panel in accordance with paragraph 23 of the Working Procedures adopted by the Panel (see 
Annexes B -1 and B -2). 
5  ARGUMENTS OF THE THIRD PARTIES  
5.1.  The arguments of Brazil, Canada, Egypt, the European Union, Japan, Sri Lanka, and Thailand  
are reflected in their executive summaries, provided in accordance with paragraph 26 of the 
Working  Procedures adopted by the Panel (see Annexes C-1 to C-7). China, Kazakhstan, the 
Republic  of Korea, the Russian Federation, and Chinese Taipei did not submit written or oral 
arguments to the Panel.  
6  INTERIM REVIEW  
6.1.  On 28 August 2019, the Panel issued its Interim Report to the parties. On 9 September 2019, 
the parties submitted their written requests for review. In addition to its written requests, India 
also requested that the Panel hold an interim review meeting with the parties. The parties 
submitted written comments on each other's written requests for rev iew on 16 September 2019. 
On the same day, the Panel held an interim review meeting with the parties. After the meeting, 
the Panel put written questions to India, to which India responded on 18 September 2019. 
The United States provided written comments on  India's responses on 20 September 2019. 
The requests made at the interim review stage as well as the Panel's discussion and disposition of 
those request are set out in Annex A -2. 
7  FINDINGS  
7.1.  Our findings, below, are structured as follows. We begin by outlini ng the burden of proof, 
burden of raising certain provisions (section 7.1), and standard of proof (section 7.2), as they are 
relevant to this dispute. Next, we  ascertain whether Article 27 of the SCM Agreement  still excludes 
India from the scope of application of Articles 3 and 4 of the SCM Agreement , and we find that it 
does not (section 7.3). We then assess whether the statement of available evidence provided by 
the United States as part of its request for consultations meets the standard of Article 4.2 of the 
SCM Agreement , and we find that it does meet th at standard (section 7.4). 
7.2.  We therefore proceed to assess the United States' claims that certain measures under the 
EOU/EHTP/BTP Schemes, EPCG Scheme , SEZ Scheme, DFIS, and MEIS, are export contingent 
subsidies inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . 
7.3.  We begin by providing a brief factual outline of the measures at issue (section 7.5). We then 
examine whether the measures at issue under the EOU/EHTP/BTP Schemes, EPCG Scheme, DFIS, 
and MEIS meet the conditions of footnote 1 of the SCM Agreement  (section 7.6). Next, we assess 
whether the challenged measures constitute a financial contribution by the government (in the 
form of revenue foregone, in section 7.7, and in the form of a direct transfer of funds, in 
section  7.8), through which a benefit is conferred (section 7.9) and, therefore, a subsidy. Finall y, 
we examine whether the subsidies that we have found to exist are export contingent and therefore 
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement  (section 7.10). WT/DS541/R  
 
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  7.4.  Before concluding, we explain how we have taken into account the special and differential 
provisions raised by India (section 7.11). We then set out our conclusions (section 8) and our 
recommendations, including the time period within which the measures we have found to be 
inconsistent with Articles 3.1(a) and 3.2 must be withdrawn (section 9). 
7.1  Burden of proof  
7.5.  The DSU does not set forth express rules concerning bu rden of proof.38 It has long been held, 
however, that WTO dispute settlement follows the "generally accepted canon of evidence in … 
most jurisdictions, that the burden of proof rests upon the party … who asserts the affirmative of a 
particular claim or defe nce".39 
7.6.  Applying this rule assumes an understanding of which party "asserts the affirmative of a 
particular claim or defence". In many instances, this is obvious. For example, a respondent 
invoking an exception under Article XX of the GATT 1994 is "assert[i ng] the affirmative of a 
particular … defence", and therefore bears the burden of proving that the conditions of Article XX 
are met. Sometimes, however, the dividing line is less clear, as in cases involving provisions 
which, while potentially disqualifyin g a claim, are not considered to be exceptions / affirmative 
defences.40 We now turn to this subject, which is relevant to two provisions at issue in this case, 
namely, footnote  1 and Article 27 of the SCM Agreement .41  
7.1.1   Exceptions and excluding provisions  
7.1.1.1   The distinction between exceptions and excluding provisions  
7.7.  WTO adjudicators have drawn a distinction between provisions that afford a "justification" for 
"measures that are found to be inconsistent with other provisions of" the WTO Agreements42 
(which we refer to as exceptions) and provisions that "limit[] the scope" of other provisions43, 
without there being a violation in the first place  (which we refer to as excluding provisions) .44  
 
38 The burden of proof identifies the party who bears the negative consequences of a situation where the 
factual foundation of a claim or defence has not been established to the necessary standard: "[w] hen the 
evidence is in equipoise, the party on whom the burden of proof rests  loses". (L. P. Loren, "Fair Use: An 
Affirmative Defense" (2015) Vol. 90:685, Washington Law Review , p. 706 ). This is also referred to as the 
burden of persuasion (e.g. J. Pauwelyn, " Defenses and the Burden of Proof in International Law " 
(3 November  2016),  version 11 July 2017, https://ssrn.com/abstract=2863962  (accessed 21 March 2019) , 
p. 3), the ultimate burden of proof (B. Cheng, General Principles of Law as Applied by International Courts and 
Tribunals  (Cambridge, 1953), p. 334), and the legal burden (J. MacLennan, " Evidence, Standard and Burden of 
Proof and the Use of Experts in Procedure before the Luxembourg Courts ", in F. Weiss, (ed.), Improving WTO 
Dispute Settleme nt Procedures: Issues and Lessons from the Practice of Other International Courts and 
Tribunals , p. 266).  
The allocation of the ultimate burden of proof is different from "the rule that the party who asserts a 
fact … is responsible for providing proof ther eof", which is referred to e.g. as the procedural burden of proof 
(B. Cheng, op. cit., p. 334) and the evidential burden (MacLennan, op. cit., p. 266). See also Appellate Body 
Report, Japan – Apples , para. 157 (describing the two as "distinct").  
39 Appellat e Body Report, US – Wool Shirts and Blouses , DSR: 1997:I, p. 335.  
40 We use the term "exceptions" as interchangeable with the phrase "affirmative defences". 
WTO adjudicators in the past have done the same. (See e.g. Appellate Body Report, US – Wool Shirts a nd 
Blouses , DSR: 1997:I, p.  337). The phrasing "affirmative defence" is used in common law jurisdictions. 
(See e.g. A. St. Eve and M. Zuckerman, " The Forgotten Pleading ", (2013), Vol. 7, Issue 1, The Federal Courts 
Law Review , p. 160). ("A negative defense  … asserts 'defects in the plaintiff's case' and the defendant has no 
burden to prove it. … Unlike a negative defense, an affirmative defense is one that admits the allegations in the 
complaint, but seeks to avoid liability, in whole or in part, by new all egations of excuse, justification, or other 
negating matter".)  
41 Footnote 1 of the SCM  Agreement excludes certain measures from the scope of the definition of a 
"subsidy" for purposes of the SCM  Agreement. Article 27.2 of the SCM  Agreement provides that th e prohibition 
of Article 3(1)(a) of the SCM  Agreement shall not apply to certain Members, subject to compliance with certain 
conditions. Article 27.4 of the SCM  Agreement provides that the provisions of Article 4 of the SCM  Agreement 
shall not apply to exp ort subsidies that are in conformity with Articles 27.2 -27.5.  
42 E.g. Appellate Body Reports, Brazil – Taxation , para. 5.83.  
43 E.g. Appellate Body Reports, Brazil – Taxation , para. 5.84.  
44 The phrase "excluding provisions" is used by Grando, e.g. in M. Gran do, "Allocating the Burden of 
Proof in WTO Disputes : A Critical Analysis " (2016), Vol. 9, No. 3, Journal of International Economic Law , 
 WT/DS541/R  
 
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  7.8.  In other words, although the outcome of upholding an exception or an excl uding provision is 
the same (i.e. the complaint fails), an exception presupposes a valid claim, to which it responds, 
whereas if an excluding provision applies, there is no valid claim under the provision that is 
excluded.   
7.1.1.2    Burden of proof under excluding  provisions  
7.9.  WTO adjudicators have often placed on complainants the burden of proof under excluding 
provisions.45 Since excluding provisions do not presuppose  a valid claim, but rather relate to the 
question of whether a valid claim has been established (nec essarily by the complainant), we will 
do the same.  
7.1.1.3   Burden of raising excluding provisions  
7.10.  A different46 question from that of which party bears the burden of proof under an excluding 
provision is the question of which party bears the burden of raising  an ex cluding provision.  
7.11.  In our view, it makes little sense to require complainants to anticipate all possible excluding 
provisions that might apply and then explain why, in fact, they do not apply.47 A responding 
Member is best placed to know whether its measure s fall under a particular excluding provision.  
7.12.  Therefore, we consider that the respondent bears the burden of raising excluding 
provisions.48 As set out in the previous section, once the respondent has properly raised an 
excluding provision, the complainant  will bear the burden of proof under the excluding provision, 
i.e. the burden of proving that the excluding provision does not apply.  
7.2  Standard of proof  
7.13.  The standard of proof is the degree  of proof that must be provided to satisfy one's burden of 
proof.  
7.14.  In WTO dispute settlement, a complainant must "establish a prima facie  case of 
inconsistency with [the] provision [invoked] before the burden of showing consistency with that 
provision is ta ken on by the defending party". In this context, a " prima facie  case is one which, in 
the absence of effective refutation by the defending party, requires a panel, as a matter of law, to 
rule in favour of the complaining party presenting the prima facie  case".49 
7.3  Whether Article  27 of the SCM Agreement  exclude s India from the scope of 
application of Articles  3 and 4 of the SCM Agreement  
7.15.  The United  States claims that the challenged measures are prohibited export subsidies in 
violation of Articles  3.1(a) and 3.2 of the SCM Agreement . Accordingly, it has sought the 
 
p. 619. WTO adjudicators have used several terms to refer to these provisions, including "derogations", 
"exemptions", an d "autonomous rights". (See, e.g. Appellate Body Reports , Canada – Renewable Energy / 
Canada – Feed-in Tariff Program , para.  5.56, and EC – Hormones , para. 104 ). "Autonomous rights" appear to 
constitute a subcategory of excluding provisions, with the peculiar trait that they can give rise to an 
independent claim.  
45 E.g. Appellate Body Report, Brazil – Aircraft , para. 141. Often, but not always: see Appellate Body 
Report, EC – Tariff Preferences , para. 113 -118. The Appellate Body has made somewhat confl icting statements 
on whether the nature of a provision as an exception or excluding provision determines the allocation of the 
burden of proof. (Compare Appellate Body Reports, EC – Tariff Preferences , para. 88 and Canada – Renewable 
Energy / Canada – Feed-in Tariff Program , para. 5.56).  
46 We discuss this question under a subheading of a section on "burden of proof" only for practical 
convenience.  
47 Of course, if the excluding provision also provides an autonomous basis for a claim (as is the case 
e.g. of A rticle 3.3 of the SPS Agreement), and the complainant wants to bring a claim  on that basis, altogether 
different considerations apply.  
48 This is without prejudice to the possibility – indeed, the need – for a panel to examine an excluding 
provision on its own motion, when a failure to do so would result in a failure to conduct an objective 
assessment of the applicability of the relevant covered agreements, contrary to Article 11 of the DSU.  
49 Appellate Body Report, EC – Hormones , para. 104.  WT/DS541/R  
 
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  establishment of a panel under Article  4.4 of the SCM Agreement . India, howev er, submits that 
following its graduation from Article  27.2(a) and Annex VII(b), the prohibition in Article 3.1(a) still 
does not apply to its subsidy schemes, as a result of Article  27.2(b). India submits that, as a 
result, Article  27.7 renders the provis ions of Article  4 of the SCM Agreement  inapplicable to this 
dispute . 
7.16.  India asked the Panel to issue a preliminary ruling that the dispute could not be subject to 
Article  4 of the SCM Agreement  unless the United  States demonstrated, or the Panel otherwise 
found, that Article  27 of the SCM Agreement  did not apply to the challenged measures.50 At the 
same time, India and the United  States had opposing interpretations of Article  27 of the 
SCM Agreement , and India argued that this disagreement went to the essence  of the dispute and 
could only be decided by the Panel as part of the full panel proceedings.51 In a communication 
dated 22 January 2019, the Panel explained that, in the circumstances of this dispute, a ruling on 
the applicability of Article  4 of the SCM Agreement  would require a ruling on the 
parties'  interpretive disagreement over Article  27 of the SCM Agreement .52 
7.17.  Below, we first recall the relevant provisions of Article  27.2 and Annex VII of the 
SCM Agreement .53 We then summarize the parties'  main argumen ts, before analysing the merits 
of the disagreement between the parties over the proper interpretation of Article  27.2(b). We then 
draw the consequences of our conclusion under Article  27.2(b) for the applicability of 
Articles  3.1(a) and 4 of the SCM Agree ment. 
7.18.  We conclude that India does not fall under Articles  27.2 and 27.7 any longer, because it has 
graduated from Annex VII(b) and Article  27.2(a) of the SCM Agreement54, and because 
Article  27.2(b) expired on 1 January 2003. Therefore, we find that Article s 3 and 4 of the 
SCM Agreement  apply in the present dispute.   
7.3.1   Relevant provisions  
7.19.  Article  27 of the SCM Agreement  sets out provisions on "Special and Differential Treatment 
of Developing Country Members". Articles  27.2 and 27.4 -27.7 concern special and dif ferential 
treatment in respect of prohibited export subsidies.  
7.20.  Article  27.2 of the SCM Agreement  provides:  
The prohibition of paragraph 1(a) of Article  3 shall not apply to:  
(a) developing country Members referred to in Annex VII.  
(b) other developing coun try Members for a period of eight years from the date of 
entry into force of the WTO  Agreement , subject to compliance with the provisions in 
paragraph  4.55 
7.21.  Annex VII of the SCM Agreement , titled "Developing country Members referred to in 
paragraph  2(a) of A rticle 27", provides:  
 
50 India's  first written submission, paras.  74-90. 
51 India's  first written submission, para.  79; Communication dated 17 August 2018 from India to the 
Chairperson of the Panel, paras.  5-6. 
52 Communication dated 22 January 2019 from the Panel to the parties concerning the Pa nel's terms of 
reference, the applicability of Article 4 of the SCM Agreement , and the statement of available evidence, 
(Annex  D-2), paras.  3.1-3.13.  
53 According to India, the burden of raising Article 27 and the burden of proof under this provision fall on 
the United States. Article 27.2 "entitle[s]" certain developing countries "to the non -application of Article 3.1(a)" 
as long as they comply with the r elevant provisions of Article 27 (Appellate Body Report, Brazil – Aircraft , 
paras.  139-141), i.e. Article 27.2 is an excluding provision. As set out in paras.  7.10-7.12 above, we consider 
that, under excluding provisions, the burden of raising rests on the respondent but the burden of proof is on 
the complainant. As regards raising, we note that, in any event, the United States did raise this provision. As 
regards proof, we place the burden on the United States . 
54 A point that is undisputed between the parties.  
55 Emphasis added.  WT/DS541/R  
 
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  The developing country Members not subject to the provisions of paragraph 1(a) of 
Article  3 under the terms of paragraph 2(a) of Article  27 are:  
(a) Least -developed countries designated as such by the United Nations which are 
Members of the WTO.  
(b) Each of the following developing countries which are Members of the WTO shall be 
subject to the provisions which are applicable to other developing country Members 
according to paragraph 2(b) of Article  27 when [g ross national product ] per capita has 
reached $1,000 per annum:  Bolivia, Cameroon, Congo, Côte d'Ivoire, Dominican 
Republic, Egypt, Ghana, Guatemala, Guyana, India, Indonesia, Kenya, Morocco, 
Nicaragua,  Nigeria, Pakistan, Philippines, Senegal, Sri Lanka and Zimbabwe.56 
7.22.  The WTO Secret ariat annually publishes the g ross national product  (GNP) per capita of the 
Annex  VII(b) developing country Members (Annex VII(b) Members)  using the three most recent 
years for which data are available.57 In 2017 and in 2018, the WTO Secretariat released the 
calculations for the three most recent years for which data are available. According to these Notes 
by the Secretariat, India's  GNP per capita exceeded USD 1,000 per year for the periods 2013 -2015 
and 2014-2016.58 
7.3.2   Main arguments of the parties  and third parties  
7.23.  The parties agree that India has graduated from Annex VII(b)  of the SCM Agreement .59 It is 
also not in dispute that Article  27.2(a) no longer excludes India from the application of the  
prohibition of export subsidies set forth in Article  3.1(a). The parties, however, differ on the 
interpretation of Article  27.2(b) , that is, the meaning of the phrase "eight years from the date of 
entry into force of the WTO  Agreement".  
7.24.  India argues that the eight -year period set out in Article  27.2(b) did not start , for India,  on 
the date of entry into force of the WTO  Agreement. Rather, it commenced on the date of 
India's  graduation from Annex VII(b), thus starting in 2017 and ending in 2025.60 India argues 
that a mere literal interpretation of Article 27.2(b) would render Article VII(b) ineffective or inutile, 
and would run contrary to the object and purpose of the SCM Agreement . India argues that Annex 
VII(b) and Article 27.1 are integral to the overall object and pu rpose of the SCM Agreement . 
Further, India submits that the purpose of providing special and differential treatment through  
Article 27 of the SCM Agreement  must not be undermined and that an interpretation of 
Article  27.2(b) based on the ordinary meaning of its text would result in inconsistencies with 
Annex VII(b), Article  27.4, and Article  27.5.61 To avoid any contradictions with these provisions, 
Article  27.2(b) must be interpreted so that  the eight-year period start s upon Annex VII(b) 
graduation. Moreover, India contends that a textual interpretation of Article  27.2(b) leaves the 
meaning of its terms ambiguous and obscure and would lead to absurd and unreasonable results.62 
According to India, t his provision must there fore be interpreted by recourse to supplementary 
means of interpretation according to Article  32 of the Vienna Convention and in particular the 
negotiating history  of Annex VII(b) .63 India argues that considering the  negotiating history , 
 
56 Fn omitted.  
57 In the 2001 Decision of  the Ministerial Conference on " Implementation -Related Issues and Concerns ", 
Members decided that the threshold of GNP per capita of USD 1,000 per year is met when Annex  VII(b) 
Members reach USD 1,000 in constant 1990 dol lars for three consecutive years. (WTO, Ministerial Conference, 
Decision of 14 November 2001, WT/MIN(01)/17, para.  10.1).  
58 Committee on Subsidies and Countervailing Measures, Annex VII(b) of the Agreement on Subsidies 
and Countervailing Measures, G/SCM/11 0/Add.14 (11 July 2017); Committee on Subsidies and Countervailing 
Measures, Annex VII(b) of the Agreement on Subsidies and Countervailing Measures, G/SCM/110/Add.15 
(20 April 2018).  
59 United  States'  first written submission, para.  26; India's  first writte n submission, para.  119. 
60 India's  first written submission, paras.  10 and 119.  
61 India's  first written submission, paras.  155-160, 162, and 164; second written submission, para s. 14, 
16, 18, 20, 23 -26, and 30. See also India's request for review, para. 5,  and Annex A -2, para. 2.1.  
62 India's  second written submission, para s. 8 and 27 . 
63 India's  second written submission, para.  7. WT/DS541/R  
 
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  Article  27.2(b) gra nts graduating Annex  VII(b) Members an additional eight -year transition 
period .64 
7.25.  According to the United  States, the eight-year period under Article  27.2(b) ended on 
1 January  2003, when eight years had passed since the entry into force of the WTO  Agreemen t on 
1 January 1995. In the United  States'  view, India is therefore now subject to the prohibition of 
export subsidies pursuant to Article  3.1(a).65 The United  States argues that the ordinary meaning 
of the phrase "a period of eight years from the date of e ntry into force of the WTO  Agreement" in 
Article  27.2(b) is clear. Other means of interpretation, as invoked by India, cannot override that 
treaty text.66 
7.26.  Egypt and Sri Lanka as third parties support India's  position concerning the interpretation of 
Article  27.2(b). Egypt argues that an interpretation of Article  27.2(b) as proposed by the 
United  States would be "unfair" and "unreasonable" for Annex VII(b) Members and would leave 
those Members "unprotected".67 Sri Lanka argues that it would not be "equitable" to treat 
low-income developing countries (when their GNP per capita reaches USD 1,000 per year) less 
favourably than higher -income developing countries, which benefited from an eight -year period at 
the entry into force of the WTO  Agreement, when their GNP per capita already exceeded 
USD 1,000 per year.68 
7.27.  Brazil, Canada, the European Union, Japan, and Thailand as third parties contend that the 
ordinary meaning of the text of Article  27.2(b) is clear and disallows India's  interpretation.69 These 
third parties a lso disagree with India's  contextual arguments concerning Annex  VII(b) and 
Articles  27.4 and 27.5.70 
7.3.3   Analysis  
7.28.  The parties agree that India has reached a GNP per capita of USD 1,000 per year and that 
as of 2017 India had graduated under Annex VII(b) and Article  27.2(a) of the SCM Agreement . 
The question is whether Article  27.2(b) now applies to India, excluding the  applicability of 
Article  3.1(a) (and as a consequence also Article  4) of the SCM Agreement  for a further eight years 
after graduation, as India argues, or whether instead Article  27.2(b) expired for all Members on 
1 January  2003, as the United  States argu es. 
7.29.   The interpretative question for us to resolve is whether, in the case of Members graduating 
from Annex  VII(b), the eight -year period afforded by Article  27.2(b) to developing country 
Members must be counted "from the date of entry into force of the WT O Agreement", or from the 
date of graduation from Annex  VII(b).  
7.30.  Below, after recalling certain rules of treaty interpretation, we consider, first, the terms of 
Article  27.2(b), and then India's  arguments concerning context (specifically, Annex  VII(b), 
Article 27.4, and Article  27.5), and object and purpose.  
7.3.3.1   Treaty interpretation  
7.31.  Article  3.2 DSU provides that Members recognize that the WTO dispute settlement system 
serves among other objectives to clarify the existing provisions of the covered  Agreements 
"in accordance with customary rules of interpretation of public international law".71 The customary 
 
64 India's  first written submission, para s. 166-179; second written submission, para.  33. 
65 United  States'  first written submission, paras.  24-26. 
66 United  States'  second written submission, paras.  55-58 and 62 -63, and fn 48.  
67 Egypt's  third-party statement at the meeting of the Panel, paras.  7 and 9.  
68 Sri Lanka's  third-party statement at the m eeting of the Panel, p.  2. 
69 Brazil's  third-party submission, paras.  14 and 15; Canada's  third-party submission, paras.  6 and 9; 
European Union's  third-party submission, paras.  5 and 9; Japan's  third-party submission, para.  11; and 
Thailand's  third-party s tatement at the meeting of the Panel, paras.  6 and 8.  
70 Brazil's  third-party submission, paras.  16-24; European Union's  third-party submission, paras.  7 and 9.  
71 Article  27.2(b) is one of "the existing provisions of the covered  Agreements" as the SCM  Agree ment is 
a covered  Agreement in accordance with Article  1.1 and Appendix 1 to the DSU.  WT/DS541/R  
 
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  rules of interpretation of public international law are codified, in particular, in Articles  31 and 32 of 
the Vienna Convention.72  
7.32.  Article  31 of the Vienna Con vention sets out the "General Rule of Interpretation". Pursuant 
to Article  31.1 of the Vienna Convention, WTO adjudicators must interpret the covered  Agreements 
"in good faith in accordance with the ordinary meaning to be given to the terms of the treaty i n 
their context and in light of its object and purpose". Articles  31.2 and 31.3, respectively, list items 
that form part of "context", and other items that "shall be taken into account, together with the 
context".  
7.33.  Article  31 of the Vienna Convention "is me ant to assist an interpreter in ascertaining the 
ordinary meaning of treaty terms, reflecting the common intention of the parties to the treaty".73 
It is generally presumed that parties to a treaty were deliberate in the specific terms they used; 
interpreta tion must therefore be based "above all" on the text of the treaty .74 From this follows 
also that a treaty interpreter must give meaning and effect to each term and not render redundant 
whole clauses or paragraphs.75 
7.34.  Moreover, the rules  of treaty interpretation "neither require nor condone the imputation into 
a treaty of words that are not there or the importation into a treaty of concepts that were not 
intended ".76 Rather, "[t]he fundamental rule of treaty interpretation requires a treaty interpret er to 
read and interpret the words actually used by the  agreement under examination, and not words 
which the interpreter may feel should have been used".77 
7.35.  The ordinary meaning  of treaty terms is not to be equated solely with dictionary meaning.78 
Instead, " [u]nder Article  31 of the Vienna Convention, the 'ordinary meaning'  of treaty terms may 
be ascertained only in their context and in the light of the object and purpose of the treaty".79 
While it may help to organize an analysis to discuss text, context, and  object and purpose in turn, 
it must be borne in mind that "interpretation pursuant to the customary rule codified in Article  31 
of the Vienna Convention is ultimately a holistic exercise that should not be mechanically 
subdivided into rigid components".80  
7.36.  Regarding the relationship between the plain textual meaning of treaty terms, on the one 
hand, and context, and object and purpose (and "possibly" the tools in Article  32 of the 
Vienna  Convention), on the other, t he Appellate  Body has stated : 
While contex t is a necessary element of an interpretative analysis under Article  31 of 
the Vienna Convention, its role and importance in an interpretative exercise depends 
on the clarity of the plain textual meaning of the treaty terms. If the meaning of 
treaty terms is difficult to discern, determining the ordinary meaning under Article  31 
may require more reliance on the context and the object and purpose of the treaty 
and possibly other elements considered "together with the context" and the tools 
mentioned in Artic le 32.81 
7.37.  Article  32 of the Vienna Convention provides for recourse to "[s]upplementary means of 
interpretation". Pursuant to Article  32, a treaty interpreter may resort to supplementary means of 
 
72 Appellate  Body Reports, US – Gasoline , DSR 1996:I , pp. 15-16; Japan – Alcoholic Beverages II , 
DSR 1996:I , p. 104. 
73 Appellate  Body Report, Peru – Agricultural Products , para.  5.93. 
74 Appellate  Body Report, Japan – Alcoholic Beverages II , DSR 1996:I , p. 105. 
75 See, e.g. Appellate  Body Report, US – Gasoline , DSR 1996:I , p. 21. The principle of effectiveness in 
treaty interpretation is a corollar y of t he general rule of interpretation  in the Vienna Convention. See also 
Appellate  Body Report, Korea  – Dairy , para.  81. 
76 Appellate  Body Report, India – Patents (US) , para.  45. 
77 Appellate  Body Report, EC – Hormones , para.  181. 
78 Appellate  Body Report, China – Publications and Audiovisual Products , para.  348. 
79 Appellate  Body Report, China – Publications and Audiovisual Products , para.  348. Object and purpose 
is that of the treaty as a whole. (Appellate  Body Report, EC – Chicken Cuts , para.  238). 
80 Appellate  Body Report, China – Publications and Audiovisual Products , para.  348. 
81 Appellate  Body Report, Peru – Agricultural Products , para.  5.94. However, the holistic exercise under 
Article  31 cannot " be used to develop interpretations … that ap pear to subvert the common intention of the 
treaty parties as reflected in the text of [the provisions being interpreted] ". (Ibid.)  WT/DS541/R  
 
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  interpretation either to confirm the meaning resulting from th e application of Article  31 of the 
Vienna  Convention, or to determine the meaning when the interpretation according to Article  31 
leaves the meaning ambiguous or obscure or leads to manifestly absurd or unreasonable results. 
Supplementary means of interpre tation include " the preparatory work of the treaty and the 
circumstances of its conclusion "82, but this listing is not exhaustive.83 
7.38.  The Appellate Body has repeatedly emphasized the "holistic" nature of the interpretive 
exercise under the rules codified in A rticles 31 and 32 of the Vienna Convention, stressing that this 
"exercise is engaged so as to yield an interpretation that is harmonious and coherent and fits 
comfortably in the treaty as a whole so as to render the treaty provision legally effective".84 
7.3.3.2   Interpretation of Article  27.2(b) based on ordinary meaning, context, and object 
and purpose  
7.3.3.2.1   Article  27.2(b)  
7.39.  Based on the above rules of treaty interpretation, the starting point for our analysis in this 
case is the text of Article  27.2(b)  of the SCM Agreeme nt. Article  27.2(b) provides for a transition  
period of "eight years from the date of entry into force of the WTO  Agreement", during which the 
prohibition in Article 3.1(a) "shall not apply". The WTO  Agreement entered into force on 
1 January  1995. Thus, "a  period of eight years from the date of entry into force of the 
WTO Agreement" is the period running from 1 January 1995 to 1 January 2003. The text of 
Article  27.2(b) does not leave scope for ambiguity in respect of the end date of that transition 
period.85 
7.40.  India does not contest the ordinary meaning of the phrase in Article  27.2(b). Rather, it 
argues that in respect of Members graduating after the entry into force of the WTO  Agreement, the 
Panel should depart from giving the terms in Article  27.2(b) their ordinary meaning and rely 
instead on supplementary means of interpretation pursuant to Article  32 of the Vienna 
Convention.86 India justifies such departure from the text of Article  27.2(b) with arguments 
pertaining to context, and object and purpose  of the  SCM Agreement .87 According to India, when 
Article  27.2(b) is read in conjunction with the context provided by Annex VII(b), Article  27.4, and 
Article  27.5, its interpretation "results in ambiguity or obscurity".88 Further, according to India, the 
ordinary m eaning of the phrase in Article  27.2(b) also runs counter to the special and differential 
treatment tenet of the object and purpose of the SCM Agreement . 
 
82 Article 32 of the Vienna Convention.  
83 Appellate  Body Report, EC – Chicken Cuts , para.  283. The reference to the circumstances of the 
conclusion of a treaty "permits, in appropriate cases, the examination of the historical background against 
which the treaty was negotiated". (Appellate  Body Report, EC – Computer Equipment , para.  86). 
84 Appellate Body Report, US – Continued Zeroing , para. 268. See also e.g. Appellate Body Reports, 
Korea – Dairy , para. 81 ; Argentina – Footwear (EC) , para.  81; US – Upland Cotton , para. 549 ; and US – 
Anti-Dumping and Countervailing Duties (China) , para. 570.  
85 See also Appellate  Body Report, Brazil – Aircraft , para.  139 ("[t]he ordinary meaning of the text of 
Article  27.2(b) is clear").  
86 India's first written submission, paras. 159, 164, and 166; second written submission, paras. 8, 10, 
12, 19,  27, and 31; opening statement at the meeting of the Panel, para s. 15, 26, and 28; response to Panel 
question No. 18; and comments on the United States response to Panel question No. 21, first para . Similarly, 
Sri Lanka's  third-party statement at the meeting o f the Panel, p p. 2-3. 
87 The parties and certain third parties have also invoked the "Joint Proposal  concerning the scope of 
Articles  27.2 and 27.4" (WTO, Negotiating Group on Rules, Amendment to Article s 27.2 and 27.4 of ASCM in 
relation to developing countries covered under Annex VII , Communication from the Plurinational State of 
Bolivia, Egypt, Honduras, India and Sri Lanka, TN/RL/GE N/177/Rev. 1 (9 March 2011), (Exhibit IND -7)) as 
supporting either India 's or the United  States'  interpretative position (India's  first written submission, 
para. 184; response to Panel question No.  20, pp.  6-8; United  States'  opening statement at the meeting of the 
Panel, para.  65; and Japan's  third-party statement at the meet ing of the Panel, para.  5). The Members 
sponsoring the Joint Proposal suggested adopting the following language as a footnote to 
Article  27.2(b):  "[i]n the case of developing country Members included in Annex VII, the 8 -year period shall 
commence from the year in which they graduate out of Annex VII". However,  the Joint Proposal remained a 
proposal  by a sub -group of Members to amend  Articles  27.2(b) and 27.4, which has not been adopted by the 
WTO Membership.  The purpose of treaty interpretation is to ascert ain the common intention of the parties 
(Appellate  Body Report, EC – Computer Equipment , para.  84), whereas unadopted negotiating proposals by 
some Members reflect the position of only those Members supporting the proposal.  
88 India's  second written submis sion, para.  27. WT/DS541/R  
 
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  7.41.  For purposes of interpreting Article  27.2(b), we therefore turn, first, to the context provided 
by Ann ex VII(b), Article  27.4, and Article  27.5 of the SCM Agreement  and, second, to the object 
and purpose of the SCM Agreement . 
7.3.3.2.2   Annex VII(b)  
7.42.  India argues that a "literal interpretation" of Article  27.2(b) based on its ordinary meaning 
and resting on an eight-year transition period starting upon the entry into force of the 
WTO Agreement would:  
a. render the mandatory language of Annex VII(b) ineffective89; and  
b. treat graduating Annex VII(b) Members differently from other developing country 
Members.90 
7.43.  We address India's  arguments in turn below.  
7.44.  Regarding India's  first argument, India recalls that the text of Annex VII(b) mandates 
("shall be subject") Article  27.2(b) to apply when Annex VII(b) Members reach the threshold of 
GNP per capita of USD 1,000 per y ear. India posits that the ordinary meaning of the terms in 
Article  27.2(b), limiting the transition period to eight years from the entry into force of the 
WTO Agreement, invalidates the mandatory language in Annex VII(b). After 1 January 2003, 
graduating Annex  VII(b) Members would no longer be "subject to the provisions which are 
applicable to other developing country Members according to paragraph 2(b) of Article  27", 
contrary, in India's  view, to what Annex  VII(b) requires.  
7.45.  We consider that India's  argum ent is not persuasive.  India seems to conflate two distinct 
issues:  the applicability of Article  27.2(b) and its content. Annex VII(b) regulates the applicability  
of Article  27.2(b) in respect of those developing country Members listed therein. By contrast , 
Article  27.2(b) sets out the conditions  governing the entitlement to the non -application of 
Article  3.1(a).  
7.46.  The phrase in Annex VII(b) "shall be subject to the provisions" renders applicable91 
Article  27.2(b), without modifying the latter's  content. The subclause " which are applicable  to 
other developing country Members according to paragraph 2(b) of Article  27 when  GNP per capita 
has reached $1,000 per annum" qualifies the provisions made applicable.92 This phrase indicates 
that Annex  VII(b) Members are s ubject to the same  provisions applying to other developing 
country Members at the time  the cross -reference  in Annex VII(b) to Article  27.2(b) operates. We 
therefore consider that the text of Annex  VII(b) does not support a reading that Article  27.2(b) is 
made applicable with a modified starting date  for the eight -year transition period.  
7.47.  We also reject India's  contention that using the ordinary meaning of Article  27.2(b) in case 
of Annex  VII(b) Members graduating late would render Annex VII(b) ineffective or  redundant. 
As set out above, Annex VII(b) provides for a simple cross -reference to Article  27.2(b). The expiry 
of the transition period in Article  27.2(b) does not render ineffective or redundant this cross -
reference:  the substance of the cross -reference is determined by the content of the provision 
referred to. Developing country Members in Annex  VII(b) , in the event of graduation before 
1 January 2003,  still enjoyed a transition period that in no case would have been less than the 
eight-year transition p eriod until 1 January 2003  pursuant to Article  27.2(b) . The possibility that 
Members graduating from Annex  VII(b) no  longer  benefit from an additional transition period 
under Article  27.2(b) is inherent in the reference by Annex  VII(b) to a provision that contains a 
time-limited transition period.  
 
89 India's first written submission, paras.  157-160; second written submission, para.  18; opening 
statement at the meeting of the Panel, para.  15; and  response to Panel question No.  18, pp.  3-4. 
90 India's  second written submission, paras.  16 and 18; opening statement at the meeting of the Panel, 
para. 15; and response to Panel question No.  18, pp.  2-3. 
91 The application of Article  27.2(b) is triggered by meeting the GNP per capita threshold.  
92 Emphases added.  WT/DS541/R  
 
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  7.48.  In light of the above, rather than rendering Annex VII(b) ineffective, an eight -year 
transition period from the date of entry into force of the WTO  Agreement is precisely what 
Annex  VII(b) envisages  by stipulating that the listed Members "shall be subject to the provisions 
which are applicable to other developing country Members according to paragraph 2(b) of 
Article  27". 
7.49.  India's  second argument relates to graduating Annex VII(b) Members not being gr anted the 
same full eight -year transition period to phase out their export subsidies that other developing 
country Members are afforded  pursuant to Article  27.2(b). India submits that graduating 
Annex  VII(b) Members would thus have less or no time to phase  out their export subsidies, 
although Annex  VII(b) seeks to grant additional  special and differential treatment.93 In the same 
vein, certain third parties contend that the less developed Annex VII(b) Members should not be 
treated less favourably than other more advanced developing countries which did not fall under 
Annex VII(b) in the first place and yet could avail themselves of an eight -year transition period.94 
7.50.  Article  27.2 and Annex VII provide for special and differential treatment and establish 
differen t degrees of flexibility in excluding developing country Members from the application of the 
prohibition of export subsidies under Article  3.1(a). The flexibilities differ between three categories 
of Members in respect of the period during which the prohib ition in Article  3.1(a) "shall not apply", 
i.e. the transition period. First, for developing country Members in general, Article  27.2(b) 
stipulates a transition period of eight years from the entry into force of the WTO  Agreement. 
During this period, t he first sentence of Article  27.4 imposes a progressive phase -out obligation on 
developing country Members referred to in Article 27.2(b) . Second, for least developed country 
Members, Article  27.2(a) in connection with Annex VII(a) provides that the prohibitio n in 
Article  3.1(a) shall not apply as long as the  Members in question  are designated as least developed 
countries by the United Nations. Third, for the developing country Members listed in Annex VII(b), 
Article  27.2(a) in connection with Annex  VII(b) prov ides for a transition period that lasts as long as 
these Members  remain below the relevant threshold, even after the eight -year period available to 
the first category of Members referred to above .  
7.51.  Under this scheme of different flexibilities, we consider that a literal interpretation of 
Article  27.2(b) in respect of graduating Annex VII(b) Members does not reduce the additional 
flexibilities afforded by Annex VII(b). First, such literal interpretation does not affect the additional, 
and more favourable, fl exibility of a transition period that lasts as long as GNP remains below the 
relevant threshold, irrespective of a strict deadline, and without an additional phase -out obligation. 
Second, beyond this additional flexibility, Annex VII(b), through its expres s cross -reference to 
Article  27.2(b), ensures that graduating Members have at least the same  flexibility as the other 
developing country Members, namely "a period of eight years from the date of entry into force of 
the WTO  Agreement".  
7.52.  Based on the above, we consider that Annex VII(b) does not provide a basis for departing 
from the text of Article  27.2(b) in respect of graduating Annex VII(b) Members. In particular, a 
textual interpretation of Article  27.2(b) neither renders Annex VII(b) ineffective, nor re sults in an 
interpretation that is ambiguous, obscure, absurd, or unreasonable. To the contrary, it allows for a 
harmonious application of both provisions.  
7.53.  Members graduating from Annex VII(b) after 1 January 2003 are also not required to 
eliminate export subsidies without prior notice. Graduation does not come as a surprise 
"overnight".95 In fact, in the 2001 Decision of  the Ministerial Conference on " Implementation -
Related Issues and Concerns ", Members agreed that Annex  VII(b) graduation would depend on 
reaching  the threshold of GNP per capita of USD 1,000 per year in constant 1990 US dollars for 
three consecutive years .96 
 
93 India's first written submissio n, paras.  157-160; second written submission, para.  18. 
94 Egypt's  third-party statement at the meeting of the Panel, paras.  6-7; Sri  Lanka's  third-party 
statement at the meeting of the Panel, pp.  2-3. 
95 India's  first written submission, paras.  177 and 186-187. 
96 WTO, Ministerial Conference Decision of 14 November 2001, WT/MIN(01)/17, para.  10.1.  WT/DS541/R  
 
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  7.3.3.2.3   Article  27.4 
7.54.  India relies on the fact that the first sentence  of Article  27.4 refers to an eight -year perio d 
without qualifying this period as commencing on the date of entry into force of the 
WTO Agreement. India argues that Article  27.4 therefore allows Members graduating from 
Annex  VII(b) after the entry into force of the WTO  Agreement to benefit from an eig ht-year 
transition period that begins when they graduate. It follows, according to India, that Article  27.4 
requires interpreting Article  27.2(b) harmoniously in favour of an eight -year transition period upon 
Annex  VII(b) graduation.97 In India's  view, Arti cle 27.4 also leads to the conclusion that the text of 
Article  27.2(b) results in internal contradictions and is ambiguous and obscure, thus necessitating 
recourse to supplementary means of interpretation.  
7.55.  The first sentence of Article  27.4 provides:  
Any d eveloping country Member referred to in paragraph 2(b) shall phase out its 
export subsidies within the eight-year period, preferably in a progressive manner.98 
7.56.  We disagree with India's  argument that the eight -year period in Article  27.4 does not start 
from the entry into force of the WTO  Agreement and that the phrase "from the date of entry into 
force of the WTO  Agreement" in Article  27.2(b) cannot be read into Article  27.4.99 Rather, for the 
following reasons, we consider that the first sentence of Article  27.4 must be read as referring to 
the period of eight years from the date of entry into force of the WTO  Agreement stipulated in 
Article  27.2(b ).100 
7.57.  First, the first sentence of Article  27.4 expressly connects with Article  27.2(b) through the 
reference to "an y developing country Member referred to in paragraph 2(b)". Second, having 
made this connection in respect of the same developing country Members, the first sentence of 
Article  27.4 then refers to phasing out export subsidies within "the eight -year period" . The use of 
the definite article  "the" demonstrates that Article  27.4 refers to a particular or already specified 
eight-year period. This period is defined in Article  27.2(b) to which Article  27.4 refers. Third, we 
find support for this reading of Article  27.4 in the fact that this provision serves to qualify the 
obligation on Members during the Article  27.2(b) transition period.101 During this period, 
developing country Members are not, without more, entitled to the non -application of 
Article  3.1(a). The en titlement to the transition period in Article  27.2(b) is made "subject to 
compliance with the provisions in paragraph 4". Those Members shall (preferably in a progressive 
manner) phase out their export subsidies as provided in Article 27.4.  
7.58.  It follows tha t while Article  27.2(b) establishes an eight -year transition period from 
Article  3.1(a), the first sentence of Article  27.4 does not establish a separate and independent 
phase -out period. Rather, it imposes an additional phase -out obligation during  the Art icle 27.2(b) 
period.102 Article  27.2(b) and the first sentence of Article 27.4 refer to the same transition period 
of eight years starting on the date of entry into force of the WTO  Agreement.  
7.59.  We therefore deny India's  request to depart from the text of Arti cle 27.2(b) because of 
Article  27.4. Instead, we conclude that the text of these provisions ensures the provisions operate 
harmoniously. For the same reason, we also reject India's  proposition that, based on Article  27.4, 
the text of Article  27.2(b) can be  characterized as ambiguous, obscure, absurd, or unreasonable.  
7.3.3.2.4   Article  27.5 
7.60.  India argues that a textual interpretation of Article  27.2(b) would lead to inconsistency with 
Article  27.5 and render the latter inutile and ineffective. More specifically, India invokes an 
 
97 India's  first written submission, para.  162; opening statement at the meeting of the Panel, para.  17. 
98 Emph asis added.  
99 India's  second written submission, para.  20. 
100 See also United  States'  second written submission, para s. 37 and 60; Brazil's  third-party submission, 
para. 21; European Union's  third-party submission, paras. 3 -9; and Canada's  third-party state ment at the 
meeting of the Panel, para.  4. 
101 Brazil's  third-party su bmission, para.  20. 
102 Panel Report, Brazil – Aircraft , para.  7.55; Appellate  Body Report, Brazil – Aircraft , para.  140. WT/DS541/R  
 
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  "internal contradiction"103 that arises, according to India, because of separate phase -out timelines 
between export subsidies for products that reach export competitiveness pursuant to Article  27.5 
and all other export subsidies under Article  27.2(b).  
7.61.  India notes that under the second sentence of Article  27.5, an Annex VII Member has 
eight years to phase out export subsidies for products in which it has reached export 
competitiveness. India contrasts this with an interpretation of Article  27.2(b) which does not 
provide for an additional eight -year transition period after graduation from Annex  VII(b). 
According to India, the result would be that, on graduating from Annex VII, a Member would be 
required to eliminate all export subsidies but at the sa me time would be allowed eight years to 
phase out export subsidies for products for which it has reached export competitiveness.104 
7.62.  We disagree with India's  premise that the eight -year phase -out period in the second 
sentence of Article  27.5 survives graduati on. The second sentence of Article  27.5 applies to 
developing country Members "referred to in Annex VII". On graduating, a Member ceases to be 
one "referred to in Annex VII", and the second sentence of Article  27.5 is no longer available to it.  
7.63.  In other wo rds, Article  27.5 does not extend the transition period set forth in Article  27.2. 
Its phase -out timelines and requirements operate within the framework of that transition period, 
and in fact limit on a product -specific basis the scope of the exclusion fro m Article  3.1(a) granted 
in Articles  27.2(a) and (b). Article  27.5 therefore qualifies the scope of the special and differential 
treatment conferred by Article  27.2; it does not grant an additional or extended exclusion  from 
Article  3.1(a).105 This mechanism  is similar to the operation of the phase -out requirement in the 
first sentence of Article  27.4.106 
7.64.  As a result, the alleged internal contradiction is based on a misreading of Article  27.5. 
We therefore conclude that interpreting Article  27.2(b) using the or dinary meaning of its terms 
does not, in light of Article  27.5, lead to ambiguous, obscure, absurd, or unreasonable results.  
7.3.3.2.5   Object and purpose  
7.65.  India appears to argue that interpreting the terms of Article  27.2(b) according to their 
ordinary meaning would undermine the object and purpose of providing special and differential 
treatment and of recognizing the economic development needs of developing country Members.107 
7.66.  As set forth in Article  31.1 of the Vienna Convention, the object and purpose of a trea ty, as 
a whole108, is relevant in determining the meaning of its provisions.109 The object and purpose of 
the SCM Agreement  "is to strengthen and improve GATT disciplines relating to the use of both 
subsidies and countervailing measures, while, recognizing at the same time, the right of Members 
to impose such measures under certain conditions ".110 Part of this balance is to grant developing 
country Members special and differential treatment.111 This emerges in particular from Article  27.1, 
which prov ides that "Members recognize that subsidies may play an important role in economic 
development programmes of developing country Members".112 
 
103 India's  second written submission, paras.  22 and 25.  
104 India's  first written submission, para.  164; second written submission, paras.  23-26; and opening 
statement at the meeting of the Panel, paras.  21-24. 
105 See also Brazil's  third-party submission, paras.  23-24; and Japan's  third-party statement at the 
meetin g of the Panel, para.  10. 
106 The first sentence of Article  27.4 equally does not establish a phase -out period that is separate and 
independent from the transition period in Article  27.2(b). See para.  7.57 above.  
107 See, e.g. India's  first written submission, paras.  151, 163, and 183;  opening statement at the 
meeting of the Panel, paras.  6 and 16; and  response to Panel question No.  18, p.  5. 
108 Appellate  Body Report, EC – Chicken Cuts , para.  238. 
109 Appellate  Body Report, Japan – Alcoholic Beverages II , DSR 1996:I , fn 20.  
110 Appellate  Body Report, US – Softwood Lumber IV , para.  64. See also Appellate  Body Report, US – 
Anti-Dumping and Countervailing Duties (China) , para . 301. 
111 Panel Report, Indonesia – Autos , para 5.194.  
112 The preamble to the WTO  Agreement also recognizes " [the] need for positive efforts designed to 
ensure that developing countries, and especially the least developed among them, secure a share in the 
growth in international trade commensurate with the needs of their economic development".  WT/DS541/R  
 
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  7.67.  Part VIII of the SCM Agreement , devoted to "Developing Country Members", consists of 
Article  27, entitled "Special an d Differential Treatment of Developing Country Members". Article  27 
"makes operational"113 the principle of special and differential treatment  in the context of the 
WTO rules on subsidies and countervailing measures. It "provide [s]"114 special and differential  
treatment for  developing country Members und er certain specified conditions. Articles  27.2 to 27.7 
and Annex  VII, in particular, provide for special and differential treatment  in respect of the 
prohibited export subsidy discipline s. It is therefore diffic ult to see how, in India's  view, the text of 
Article  27.2(b) "would run contrary to the object and purpose of Part VIII of the 
SCM Agreement ".115 Rather, it reflects part of a delicate balance, struck by the drafters, between 
constraining certain types of su bsidies on the one hand and providing special and differential 
treatment through clear and unambiguous time -bound flexibilities  on the other hand. A literal 
interpretation of Article  27.2(b) is thus in line with, and gives effect to, the purpose of further ing 
special and differential treatment for  developing country  Members.  
7.68.  We therefore take the view that considering the object and purpose of the SCM Agreement  
does not require a departure from the ordinary meaning of Article  27.2(b).  
7.3.3.2.6   Conclusion  
7.69.  Based on th e above, we find that the terms of Article  27.2(b) in the context of the  
SCM Agreement  and in light of its object and purpose do not lead to conclude otherwise than that 
the eight -year transition period in Article  27.2(b) runs from 1 January 1995. In fact , a reading of 
Article  27.2(b) as referring to eight years from 1 January 1995 sits harmoniously with its context 
and with the object and purpose of the SCM Agreement . 
7.3.3.3   Supplementary means of interpretation  
7.70.  Article  32 of the Vienna Convention allows recourse  to supplementary means of 
interpretation either "to confirm the meaning resulting from the application of article  31" of the 
Vienna Convention or, when the interpretation according to Article  31 leaves the meaning 
ambiguous or obscure or leads to manifest ly absurd or unreasonable results, "to determine the 
meaning".  
7.71.  India argues that the plain text of Article  27.2(b), when viewed in light of Annex  VII(b) and 
Articles  27.4 and 27.5, results in ambiguity, obscurity, absurdity, and unreasonableness.116 India 
submits that the Panel must therefore depart from the text of Article  27.2(b) and rely on 
supplementary means of interpretation according to Article  32 of the Vienna Convention in order to 
read Article  27.2(b) as entitling graduating Annex VII(b) Members to an eight -year transition 
period upon their graduation.117 
7.72.  Above, we found that a textual interpretation of the terms in Article  27.2(b) does not leave 
their meaning ambiguous or obscure, or lead to manifestly absurd or unreasonable results. To the 
contrary, the meaning of Article  27.2(b) is clear and unambiguous and its textual interpretation 
does not result in internal contradictions with Annex VII(b), Article  27.4, or Article  27.5. On this 
basis, we disagree with India on the need in this case to resort to supplementary means of 
interpretation  because of alleged ambiguity, obscurity, absurdity, and unreasonableness resulting 
from the interpretation according to Article 31 of the Vienna Convention.  
7.73.  Article 32 of the Vienna Convention also allows  us to have recourse to supplementary 
means of interpretation in order to confirm  the meaning resulting from the application of 
Article  31. However, in light of the clear meaning of Article 27.2(b), we do not consider it 
necessary in this case to have recourse to supplementary means of interpretation.118  
 
113 Panel Report, Canada – Aircraft (Article  21.5 – Brazil) , fn 120. 
114 Appellate  Body Report, Brazil – Aircraft , para.  140. 
115 India's  second written submission, para.  10. 
116 India's  first written submission, para.  166; second written submission, paras.  10, 27, and 30 -31. 
117 India's  second written submission, paras.  12, 27, and 31.  
118 See also Annex A -2, paras. 2.19 -2.28.  WT/DS541/R  
 
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  7.3.3.4   Conclusion  on Article  27.2 and Article  3.1(a) of the SCM Agreement   
7.74.  It is an undisputed fact that India has graduated from Annex  VII(b). The text of 
Article  27.2(b), in its context and in light of the object and purpose of the SCM Agreement , leads 
us to conclude that the eight -year transition period from the date of entry into force of the 
WTO Agreement set forth in Article  27.2(b) has expired on 1 January 2003, also for Members 
graduating from Annex VII(b). Therefore, we find that Article  27 no longer excludes  India from the 
application of Article  3.1(a) of the SCM Agreement . 
7.3.3.5   Conclusion on  Article  4 of the SCM Agreement  
7.75.  Article  27.7 of the SCM Agreement  excludes from the application of Article  4 of the 
SCM Agreement  "a developing country Member in the case of export subsidies which are in 
conformity with the provisions of paragraphs 2 to 5" of Article  27. 
7.76.  As set out above, India has graduated from Annex VII to the  SCM Agreement , and the 
transition period in Article  27.2(b) has expired. Therefore, the exclusion set out in Article  27.7 
does not operate and, as a result, Article  4 of the SCM Agreement  applies to this dispute.  
7.4  Statement of available evidence  
7.77.  India as ked the Panel to rule that the statement of available evidence included in the 
United  States'  request for consultations does not meet the requirements of Article  4.2 of the 
SCM Agreement .119 India argues that the statement fails to provide any evidence of th e character 
of the measures as subsidies, and merely reproduces the list of legal instruments appearing in the 
request for consultations and subsequently in the panel request.  
7.78.  We discuss, first, the legal standard under Article  4.2 of the SCM Agreement  (section 7.4.1) 
and, second, the application of that legal standard to the statement of available evidence, in light 
of the arguments of the parties ( section 7.4.2). As set out below, we find that the statement of 
available evidence contained in the United  States'  request for consultations meets the stand ard set 
out in Article  4.2 of the SCM Agreement . 
7.4.1   The applicable legal standard under Article  4.2 of the SCM Agreement  
7.79.  Article  4.2 of the SCM Agreement  is a special or additional rule listed in Appendix 2 to the 
DSU, applying to  disputes involving allegations of prohibited subsidies under Article  3 of the 
SCM Agreement . Pursuant to Article  1.2 of the DSU, such special or additional rules apply together 
with the DSU, except that, to the extent there is a conflict, the special or a dditional rules 
prevail.120 
7.80.  Article  4.2 of the SCM Agreement  provides:  
A request for consultations under paragraph 1 shall include a statement of available 
evidence with regard to the existence and nature of the subsidy in question.  
7.81.  Thus, a complainant in a prohibited subsidies case must "indicate, in its request for 
consultations, the evidence that it has available to it, at that time, 'with regard to the existence 
and nature of the subsidy in question'".121 This must be "available evidence of  the character of the 
measure as a 'subsidy'  … and not merely evidence of the existence of the measure" .122 
 
119 India's  first written submission , paras.  16-18; see also DSB, Minutes of the meeting held on 
28 May 2018, WT/DSB/M/413, para. 7.3, reporting India's concerns that  the request for consultations failed to 
meet the requirements of the SCM  Agreement, as well as of the DSU. The Panel declined  the request for a 
ruling at preliminary stage.  (Communication dated 22 January 2019 from the Panel to the parties concerning 
the Panel's  terms of reference, the applicability of Article  4 of the SCM Agreement,  and the statement of 
available evidence , (Annex D-2), paras.  4.1-4.8). 
120 Appellate  Body Report, Guatemala – Cement I , para.  65. 
121 Appellate  Body Report, US – FSC, para.  161. 
122 Appellate  Body Report, US – FSC, para.  161. WT/DS541/R  
 
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  7.82.  In Australia – Automotive Leather II , the panel interpreted the requirement for a "statement 
of available evidence" in Article  4.2 as meaning that the  complainant must include in its request 
for consultations :  
[A]n expression in words of the facts at its disposal at the time it requests 
consultations in support of the conclusion that it has, in the words of Article  4.1, 
"reason to believe that a prohib ited subsidy is being granted or maintained".123 
7.83.  Further, "the requirement is to provide a 'statement'  of the evidence and not the evidence 
itself"124, nor "disclosure of arguments".125 
7.84.  The Appellate  Body has emphasized the importance of the requirement in Artic le 4.2 of the 
SCM Agreement  to provide a statement of available evidence, given the "accelerated timeframes 
for disputes" under Article  4 and the "complex factual questions" that these disputes raise.126 
It has underlined that this requirement is "distinct f rom – and not satisfied by compliance with – 
the requirements of Article  4.4 of the DSU".127 In other words, it is additional to "giving the 
reasons for the request for consultations and identifying the measure and the legal basis for the 
complaint under Art icle 4.4 of the DSU".128 
7.85.  At the same time, the statement "is the starting point  for consultations, and for the 
emergence of more evidence concerning the measures by reason of the clarification of the 
'situation'".129 The statement "informs the beginning of the  dispute settlement process", and "does 
not limit the scope of evidence and argument for the entire proceeding".130 As a result, in 
assessing the sufficiency of the statement, which must be done "on a case by case basis"131, it is 
"important to bear in mind th at the requirement to submit a statement of available evidence 
applies in the earliest stages of WTO dispute settlement".132  
7.4.2   Whether the statement of available evidence meets the requirements of 
Article  4.2 of the SCM Agreement  
7.86.  In the present case, the Unit ed States'  statement of available evidence lists:  all the legal 
instruments listed in the body of the request for consultations, and subsequently in the panel 
request133; and two publications of the Ministry of Commerce and Industry of India, 
namely  (a) "Highlights of the Foreign Trade Policy 2015 -2020 Mid Term Review 
 
123 Panel Report, Australia – Automotive Leather II , para.  9.19.  
124 Appellate  Body Report, US – Upland Cotton , para.  308. 
125 Panel Report, Australia – Automotive Leather II , para.  9.18.  
126 Appellate  Body Report, US – FSC, para.  160. 
127 Appellate  Body Report, US – FSC, para.  161. 
128 Appellate  Body Report, US – FSC, para.  161. 
129 Appellate  Body Report, US – Upland Cotton , para.  308 (referring to Panel Report, US – Upland 
Cotton , para.  7.100). (emphasis added)  
130 Panel Report, Australia – Automotive Leather II , para.  9.29. See also ibid. para.  9.27. Also, 
Article  4.2 of the SCM  Agreement "does not, on its face, require disclosure of arguments". ( Ibid. para.  9.18).  
131 Appellate  Body Report, US – Upland Cotton , para.  308. 
132 Appellate  Body Report, US – Upland Cotton , para.  308 (referring to Panel Report, Australia – 
Automotive Leather I I, para.  9.19).  
133 These are Instruments Nos.  1-27 in the panel request, discussed in Communication dated 
22 January  2019 from the Panel to the parties concerning the Panel's terms of reference, the applicability of 
Article 4 of the SCM  Agreement,  and the s tatement of available evidence , (Annex D -2), section 2.3.1 and 
annex A. The numbering of the same legal instruments in the body of the two requests and in the statement of 
available evidence, while overlapping in part, is not the same. The Panel therefore refers to "Instruments", with 
the corresponding numbering, when referring to the panel request and to the body of the request for 
consultations; and to "Items", with the corresponding numbering, when referring to the statement of available 
evidence submitt ed together with the request for consultations.  
A number of these Instruments /Items  were also  submitted as exhibits by the parties. For those that 
were not also submitted (or not submitted in their entirety) as exhibits, with a communication dated 
15 July 2019, the Panel transmitted to the parties the electronic files it downloaded from the web pa ges listed 
in its Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM  Agreement,  and the statement of available evidence , 
(Annex  D-2), annex A, at the date o f access stated therein. On 19 July 2019, the United States submitted 
versions of these documents as Exhibits USA -74 to USA -84. On 26 July 2019, India submitted a replacement 
version of Exhibit  USA-84 (Exhibit IND -23). WT/DS541/R  
 
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  (5 December  2017)" (the Highlights); and (b) an accompanying press release entitled "Release of 
the Mid -Term Review of Foreign Trade Policy 2015 -2020 – Annual Incentives Increased by 2% 
amountin g to over Rs 8,000 crore for Labour Intensive/MSME sectors (5 December  2017)" (the 
Press Release).134 
7.87.  India argues that this statement falls short of the requirements of Article  4.2 of the 
SCM Agreement .135 Specifically, India argues that the statement  (a) inc ludes no evidence of the 
character of the measure as a subsidy136; (b) "reproduces a verbatim list" of the legal instruments 
cited in the request for consultations137; and (c) provides no "basis for the[] identified 
programmes/schemes providing a subsidy" beca use it does "not indicate any specific chapter or 
paragraph" of the cited legal instruments.138 In addition, India considers that the lack of 
"substantive difference" between the request for consultations and the panel request is further 
evidence of the Unit ed States'  failure to appreciate the substantive standard in Article  4.2 of the 
SCM Agreement .139  
7.88.  The United  States responds that India confuses evidence with arguments.140 Article  4.2 
requires a statement of the former, not the latter.141 The United  States considers that it has 
demonstrated in its first written submission that the cited evidence "is indeed evidence regarding 
the existence and nature of the subsid[y] in questi on".142 Specifically, the statement "identified 
twenty -five separate legal instruments that gave the United  States reason to believe that there are 
five Indian export subsidy programs that are inconsistent with Articles  3.1(a) and 3.2 of the 
SCM Agreement ", and that "are the primary evidentiary basis for the U.S. claims".143  
7.89.  We now turn to consider the items in the statement of available evidence in light of the legal 
standard and the arguments of the parties.  
7.90.  Item No.  1 in the statement of available evidence  consists of the Highlights of the 
Foreign  Trade Policy (FTP)  mid-term review, issued by the Government of India in 
December  2017.144 This document describes some of the changes made to the FTP as part of the 
mid-term review, and refers in particular to the first, second, and third schemes145 listed in the 
 
134 Request for consultations, p.  4 (statement of available evidence). SAE Item 1 and SAE Item 2 in 
Communication dated 15 July  2019 from the Panel to the parties relating to the keeping of the record of the 
Panel. The Panel located these documents 
at: https://www.eoimadrid.gov.in/archives/documents/whatsnews/fthl17 -051217.pdf  and 
http://pib.nic.in/newsite/PrintRelease.aspx?relid=174 117, respectively (both accessed on 28 November 2018). 
The first of the two links has since stopped working, and the corresponding document can now be accessed at: 
https://www.eoimadrid.gov .in/pdf/fthl17 -051217.pdf  (accessed on 24 June 2019).  
With a communication dated 15 July 2019, the Panel transmitted to the parties the electronic files it 
downloaded on 28 November 2018 from the first two web pages listed above. On 19 July 2019, the 
United States submitted these documents as Exhibits USA -85 and USA -86. 
135 India's  first written submission, paras.  16-18. India also expressed concerns that the request for 
consultations failed to meet the requirements of the SCM  Agreement (and of the DSU) at th e DSB meeting at 
which the Panel was established. D SB, Minutes of the meeting held on 28 May 2018, WT/DSB/M/413, 
para. 7.3. 
136 India's  first written submission, paras.  96 and 100. See also India's opening statement at the 
meeting of the Panel, paras.  33-34; and closing statement at the meeting of the Panel, para.  7. 
137 India's  first written submission, paras.  95 and 97. See also India's response to Panel question 
No. 26, fourth  para. 
138 India's  first written submission, para.  101. See also India's responses to  Panel question No.  26, 
fifth para., and No.  27, first para.  
139 India's  first written submission, paras.  102-103. See also India's opening statement at the meeting 
of the Panel, para.  35. 
140 United  States'  second written submission, paras.  41-43. 
141 United  States'  second written submission, paras.  42-43 (referring to Pa nel Report, Australia – 
Automotive Leather II , para.  9.18).  
142 United  States'  second written submission, para.  41. See also, ibid. para.  44. 
143 United  States'  second written submission, para.  44. 
144 See fn 134 above.  
145 These are sometimes referred to as "programmes" and sometimes as "schemes". The two terms are 
used interchangeably in this context. In the body of this report, we have chosen to refer  to them only as 
"schemes". We note however that in our Communication dated 22 January 2019 from the Panel to the parties 
concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement,  and the 
statement of available evidenc e, (Annex  D-2), we used the term "programme". The same considerations also 
apply to the fourth and fifth schemes, discussed further below.  WT/DS541/R  
 
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  request for consultations, i.e. the EOU and Sector -Specific Schemes, MEIS, and the EPCG Scheme, 
respectively.  
7.91.  Regarding MEIS, the Highlights note that it "is a major export promotion scheme which 
seeks to pr omote export of notified goods manufactured/produced in India"; that "MEIS incentives 
are available at 2, 3, 4 and 5% of the [free on board] value of exports"; and that incentives in 
two textiles sub -sectors, as well as "for exports by MSMEs / labour inten sive industries" have been 
increased, involving additional outlays of "Rs. 2743 Crore" and "Rs. 4567 Crore", respectively.146 
It further notes that the validity of scrips under MEIS has been extended by six months and the 
tax rate for their transfer reduced to zero147; and more generally that the "[s]cope and incentives 
as a percentage of exports under … MEIS … [have been] enhanced".148 Regarding the EOU and 
Sector -Specific Schemes, MEIS and EPCG Scheme, the Highlights state that these are 
"continued".149 
7.92.  Item No.  2 in the statement of available evidence is a press release that accompanied the 
release of the FTP mid -term review. This press release explains, among other things, that "[t]he 
FTP will focus on exports from labour intensive and MSME sectors by way of inc reased incentives in 
order to increase employment opportunities"150, and that "[w]hile restoring the benefits under the 
export promotion schemes of duty free imports under Advanced Authorisation, Export Promotion 
Capital Goods and 100 percent Export Oriented  Units … the FTP review has focused on increasing 
the incentives for labour intensive MSME sectors" .151 It then goes on to describe, like the 
Highlights, the specific increases in the rate of incentives and the resulting additional outlays, as 
well as provid ing a breakdown by sector of some of the resulting incentives.152 
7.93.  Item No.  3 in the statement of available evidence is the FTP, which is the same as 
Instrument  No. 1 in the request for consultations and in the panel request.153  
7.94.  Chapter 6 of Item No.  3 relates  to the EOU and Sector -Specific Schemes. Section 6.00 of 
the FTP describes the units that may benefit from these schemes, as follows:  "[u]nits undertaking 
to export their entire production of goods and services (except permissible sales in DTA [domestic 
tariff area])". Sections 6.01, 6.11, and 6.12 set forth exemptions from duties and taxes for import 
or procurement of goods, as well as other entitlements of units under the EOU and Sector -Specific 
Schemes.  
7.95.  Chapter 3 of Item No.  3 relates to MEIS. Section 3 .02 of the FTP, on "Nature of Rewards", 
explains that "[d]uty credit scrips shall be granted as rewards under MEIS" and "shall be freely 
transferable", and goes on to describe the three types of uses to which these duty scrips can be 
put, i.e. payment of c ustoms duties on certain goods, payment of excise on certain goods, and 
payment of certain other dues such as for shortfalls in export obligation. Section 3.04 of the FTP, 
on "Entitlement under MEIS", explains that "[e]xports of [certain goods to certain m arkets] shall 
be rewarded under MEIS"; that the "basis of calculation of reward" is "FOB value of exports"; and 
that certain "exports categories / sectors" are ineligible. The relevant goods and markets for 
purposes of Section 3.04 are set out in Item No.  8 of the statement of available evidence 
(Instrument No.  7 in the request for consultations and the panel request), as amended by Items 
No. 9-16 (Instruments  No. 8-15 in the request for consultations and the panel request).  
7.96.  Chapter 5 of Item No.  3 relates to the EPCG Scheme. Section 5.01 of the FTP explains that 
this scheme:  "allows import of capital goods … at zero customs duty"; allows for exemption from 
certain other taxes; and in some cases allows for advantages also in connection with the 
procurement o f capital goods "from indigenous sources". Section 5.01 also provides that "[i]mport 
under EPCG  Scheme shall be subject to an export obligation". Section 5.04 sets out the conditions 
 
146 Highlights, p.  4. 
147 Highlights, p.  5. 
148 Highlights, p.  12. 
149 Highlights, p.  13. 
150 Press Release , p. 1. 
151 Press Rele ase, p.  1. 
152 Press Release, p.  2. 
153 See fn 133 above, and Communication dated 22 January 2019 from the Panel to the parties 
concerning the Panel's terms of reference , the applicability of Article 4 of the SCM Agreement,  and the 
statement of available evidence , (Annex  D-2), paras. 2.27 -2.36, 2.56 -2.59, and 2.69 -2.70.  WT/DS541/R  
 
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  applying to the fulfilment of this export obligation. As a general rule, it provides that the export 
obligation "shall be fulfilled by the authorisation holder through export of goods which are 
manufactured by him or his supporting manufacturer / services rendered by him, for which the 
EPCG authorization has been granted".154 It further provides that the export obligation "shall be, 
over and above, the average level of exports achieved by the applicant in the preceding three 
licensing years for the same and similar products within the overall [export obligation] period", 
with some  exceptions.155 
7.97.  Items Nos.  4-20, which correspond to Instruments Nos.  2-5, 7-15, and 17 -20 in the request 
for consultations and in the panel request156, set out details for the operation of the EOU and 
Sector -Specific Schemes, MEIS and EPCG Scheme, amendments to those schemes and, in the case 
of MEIS, the goods and markets of export that give rise to rewards under the scheme.  
7.98.  Items Nos.  21-26, which correspond to Instruments Nos.  21-26 in the request for 
consultations and in the panel request, relate to the fo urth scheme listed in the request for 
consultations, i.e. the SEZ Scheme. In particular, Chapter VI of Item No.  21 (the Special Economic 
Zones Act (SEZ Act)) sets out "Special fiscal provisions for special economic zones", applying to 
developers and entrep reneurs for "authorised operations" under the Act.157 It provides for 
exemptions from customs duties and other taxes that would otherwise be due under the 
1962 Customs  Act, the 1975  Customs Tariff Act , the 1944  Central Excise Act, the 1985  Central 
Excise Tar iff Act, the  1956 Central Sales Tax Act , and other legislation.158 It further provides that 
the 1961  Income Tax Act  applies to developers and entrepreneurs for authorised operations 
"subject to … modifications" set out in Item No.  21, that is, it provides th at special rules on income 
tax apply to Special Economic Zones159; these provisions are also reflected in Item No.  26, the 
1961 Income Tax Act.  
7.99.  Item No.  22 (the Special Economic Zones Rules (SEZ Rules)) details the conditions subject 
to which entrepreneurs and developers are entitled to exemptions, drawbacks, and concessions. 
Among other conditions, it requires "positive net foreign exchange earning" as a condition for 
approving a Unit in an SEZ160, and as a commitment that every developer and en trepreneur must 
undertake to be entitled to exemptions, drawbacks, and concessions.161 In extreme summary, the 
positive net foreign exchange (NFE) earning requires the free on board (FOB) value of exports to 
exceed the cost insurance freight (CIF) value of i mports during specified time periods; Item No.  22 
provides a detailed definition of this requirement.162 
7.100.   Items Nos.  23 and 24 are amendments to Item No.  22. Item No.  25 provides that all 
goods or services imported by a developer or entrepreneur in an SEZ are  exempt from the 
integrated tax that would otherwise be due on them under the 1975 Customs Tariff Act.  
7.101.   Item No.  27 relates to the fifth scheme listed in the request for consultations, i.e. DFIS. 
Specifically, it is the only legal instrument listed in the r equest for consultations as reflecting that 
scheme. It sets forth exemptions from or reductions to customs duties on the importation of 
certain goods, subject to certain conditions.163  
7.102.   The United  States'  request for consultations singled out nine conditions , as did, 
subsequently, the panel request. These nine conditions provide that the value of the imports 
 
154 Subsection 5.04(a) of the Foreign Trade Policy, (Exhibit USA -3). 
155 Subsection 5.04(b) of the FTP.  
156 See fn 133 above and Communication dated 22 January 2019 from the Panel to the parties 
concerning the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement,  and the 
statement of available evidence , (Annex  D-2), paras. 2.37, 2.60, 2.71 (for Instrument No. 2), 2.38 -2.39, 2.61, 
2.72 (for Instrument No. 3), 2.40, 2.62, 2.73 (for Instruments Nos. 4 and 5), 2.63 (for Instruments 
Nos. 7-15), 2.74 (for Instrument No. 17), 2.75 (for Instrument No. 18), 2.76 (for Instrument No. 19), 
and 2.77 (for Instrument No. 20). 
157 Subsection 26(1)(a) of the Special Economic Zones  Act, (Exhibit USA -22). 
158 Section  26 of the SEZ Act . 
159 Section  27 and Second Schedule of the SEZ Act . 
160 Subsection  18(2)(i)  of the Special Economic Zones  Rules , (Exhibit USA -28). 
161 Rule 22(1)(i)  of the SEZ  Rules.  
162 Rule 53 of the SEZ  Rules.  
163 Notification No.  50/2017, (Exhibit USA -36), p.  1. WT/DS541/R  
 
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  benefiting from the duty exemptions or reductions is capped at a certain percentage (ranging 
from 1% to 25%, depending on the condition) of the value of exports during the preceding 
financial year.164 Six of these nine conditions also require that the imported goods be used in the 
manufacture of goods for export.165  
7.103.   We now turn to the question whether the list of items just described is a "statement of 
availa ble evidence with regard to the existence and nature of the subsidy in question", in light of 
India's  arguments.166 To recall, India's  first argument is that the request for consultations includes 
no evidence of the character of the measure as a subsidy, as is required by Article  4.2 of the 
SCM Agreement .167  
7.104.   As set out above, the items listed in the statement of available evidence describe, at 
least:  an exemption from taxes, or the granting by the government of freely transferable "scrips" 
to be used to satisf y certain liabilities; and conditions for obtaining these exemptions and scrips, 
which, in each case, include some requirement to export. Most of the listed items are legislation or 
implementing regulation s promulgated by India.  
7.105.   In this way, the listed items evidence the possible existence of a foregoing of government 
revenue, and of the government's granting of instruments, called "scrips", that can be used to 
satisfy liabilities vis-à-vis the government. Further, since the liste d items provide for 
(a) exemptions from otherwise applicable duties and taxes; and (b) transferable instruments that 
may be used to satisfy obligations to pay customs duties, excise, and other dues, they also 
evidence the possible existence of a benefit, a nd thus a possible subsidy within the meaning of 
Article  1 of the SCM Agreement .168 This evidence therefore relates not only to the existence of the 
possible subsidy but also to its nature as a subsidy.   
7.106.   Moreover, because they set out conditions for benefiti ng from the tax exemptions or from 
the award of scrips that include requirements to export, the listed items also evidence the possible 
export contingency of the measures in question, within the meaning of Article  3.1(a) of the 
SCM Agreement . This evidence  therefore relates also to the nature of the possible subsidy as a 
prohibited export subsidy.  
7.107.   As a result, we consider that the statement indicates available evidence both of the 
existence  of the possible subsidies and of their nature  as possible subsidie s and, indeed, as 
possible export -contingent subsidies. We therefore disagree with India's position that the 
statement of available evidence relates to the existence of the measure but not to its character as 
a subsidy.169  
7.108.   We now turn to consider India's  second argument, namely, that the statement is 
insufficient because it reproduces "verbatim" the list of legal instruments provided to satisfy the 
requirement to identify the measures under Article  4.4 of the DSU.170  
7.109.   As India argues, the requirements in Artic le 4.2 of the SCM Agreement  are additional to 
those in Article  4.4 of the DSU, and not satisfied by compliance with the latter requirements.171 
In this case, 25 of the 27 items of evidence in the statement of available evidence are legal 
 
164 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM Agreement,  and the statement of available evidence , 
(Annex  D-2), paras.  2.104 -2.107.  
165 These are Conditio ns Nos.  10, 21, 28, 32, 33, and 101. ( Communication dated 22 January 2019 from 
the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the 
SCM Agreement,  and the statement of available evidence , (Annex D -2), pa ras. 2.104 -2.107).  
166 India's  objections to the statement of available evidence do not appear to relate to existence:  see 
e.g. India's  first written submission, para.  96 ("merely demonstrating the existence of a measure … does not 
satisfy the mandate to evi dence 'character'").  
167 See para.  7.87 above; and India's  first written submission, paras.  96 and 100.  
168 The Panel refers to a "possible" subsidy because whether the challenged measures are ultimately 
found to be a subsidy is a different and further enquiry.  
169 See para.  7.87 above; and India's  first written submission, paras.  96 and 100.  
170 India's  first written submission, para.  97. See also para.  7.87 above; and first written submission, 
para. 95. 
171 India's  first written submission, para.  95; Appellate  Body Report, US – Upland Cotton , para.  302. WT/DS541/R  
 
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  instruments cited in  the United  States'  request for consultations to identify the measures. 
The United  States argues that these legal instruments "are the primary evidentiary basis for 
the U.S. claims"172, and the Panel has ascertained, as set out above, that these legal instru ments 
are evidence relating both to the existence and nature of the measures as subsidies.  
7.110.   This factual situation raises the question whether the near -identity between the request for 
consultations and the statement of available evidence included in it de monstrates, in itself, the 
insufficiency of the statement of available evidence.  
7.111.   Article  4.2 of the SCM Agreement  requires a request for consultations to "include a 
statement of available evidence with regard to the existence and nature of the subsidy in 
question". As has been repeatedly found, this requirement is different from, and additional to, the 
requirement to identify the measures at issue and give an indication of the legal basis of the 
complaint, set out in Article  4.4 of the DSU. This however me ans that both sets of requirements 
must be satisfied; it does not necessarily mean that the same item cannot, in any case, serve both 
to identify the measure at issue and to provide evidence of the existence and nature of a subsidy. 
In this dispute, as not ed above, the listed items appear to satisfy the requirements of Article  4.2 of 
the SCM Agreement .173 The fact that the same items also serve to identify the challenged 
measures, in itself, does not render insufficient the statement of available evidence.  
7.112.   India's  third argument is that the statement of available evidence is insufficient because it 
does "not indicate any specific chapter or paragraph which would result in a violation of the 
SCM Agreement ", which is an "implicit failure to offer any … basis [f or] the existence of a possible 
subsidy".174 The United  States responds that India confuses evidence with arguments.175  
7.113.   Pursuant to Article  4.2 of the SCM Agreement , the complainant must "state" the 
"evidence" it has available as to the existence and nature o f the challenged subsidy. This did not 
require the complainant in this case to indicate the "specific chapter or paragraph" of the cited 
items of evidence. The complainant stated the evidence it was relying on, so as to meet the 
requirements of Article  4.2. Moreover, the body of the text of the request for consultations, which 
precedes and introduces the text of the statement of available evidence, provided sufficient 
information to put the respondent on notice as to which aspects of the legal instruments c ited as 
evidence are relevant to this dispute.176  
7.114.   As examples of how the cited legal instruments fail to provide evidence of the existence 
and nature of the challenged subsidies, India refers to (a) the Income Tax Act (Item No.  26), 
(b) Items  Nos. 21 to 24,  and (c) Items Nos.  1 to 6.177  
7.115.   Regarding the Income Tax Act, India argues that "when read alone, [it does] not even 
vaguely indicate that [it] refer[s] to prohibited subsidies", and that the United  States "has failed" 
"to demonstrate how the Indian Income T ax Act may be characterized as a subsidy".178  
7.116.   First, we disagree with India that the Income Tax Act must be "read alone". The 1961 
Income Tax Act, which is listed in the statement of available evidence, appears in the context of a 
request for consultations where the same Income Tax Act is cited with reference to a specific 
scheme, namely, Special Economic Zones, and together with a number of related instruments.179 
 
172 United  States'  second written submission, para.  44. 
173 Perhaps unsurprisingly, given the largely de jure  nature of the challenge.  
174 India's  first written submission, para.  101. See also India's response to Panel question No.  27, 
first para. ("at the very least,  the statement of available evidence must have included specific provisions within 
the legislation that are relevant to the ch aracterization of the measure as a prohibited subsidy").  
175 United  States'  second written submission, paras.  41-43. 
176 As India acknowledges, the text of the request for consultations is almost identical to the text of the 
panel request. (India's  first writt en submission, para.  102). With reference to the panel request, which is 
identical in relevant part to the request for consultations, see Communication dated 22 January 2019 from the 
Panel to the parties concerning the Panel's terms of reference, the appli cability of Article 4 of the 
SCM Agreement,  and the statement of available evidence , (Annex D -2), paras.  2.41, 2.64, 2.78, 2.91, 
and 2.109.  
177 India's  response to Panel question No.  26, fifth and sixth paras.  
178 India's  response to Panel question No.  26, fif th para.  
179 Consultations request, p.  3. WT/DS541/R  
 
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  Among these legal instruments, the SEZ Act, which establishes the scheme in question, provides 
that the Income Tax Act "shall apply … subject to the modifications specified in the Second 
Schedule".180 Further, the Second Schedule lists the "Modifications to the Income -Tax Act, 1961", 
i.e. the provisions of the Income Tax Act that are added or modified by the SEZ Act.181 Therefore, 
the 1961  Income Tax Act is far from having to be "read alone".  
7.117.   Second, regarding India's  argument that the United  States "has failed" "to demonstrate 
how the Indian Income Tax Act may be characterized as a subsidy"182, we recall that the 
requirement is to provide a statement of the evidence, not "disclosure of arguments".183 We note 
that the provisions on special economic zones in the 1961 Income Tax Act, identified in the Second 
Schedule of the SEZ  Act, relate to tax exempti ons and deductions, and some explicitly provide that 
the exemption or deduction in question relates to "export".184 Thus, together with the other listed 
items, they give "reason to believe"185 that a subsidy exists, has the character of a subsidy, and 
indeed h as the character of a prohibited subsidy.186 
7.118.   Regarding Items Nos.  21 to 24, India argues that they do "not indicate that they refer to 
subsidies".187 However, Items Nos.  21 to 24 provide for the establishment and operation of 
Special  Economic Zones and set out , inter alia , special fiscal provisions for such zones; conditions 
under which participants are entitled to exemptions, drawbacks, and concessions; and rules on the 
NFE earnings requirement.188 Thus, India's  view that these Items do not "refer to subsidies" 
appears to be grounded in India's  position on the merits of the present case, rather than in an 
assessment of Items Nos.  21 to 24 from the perspective of Article  4.2 of the SCM Agreement . 
7.119.   Regarding Items Nos.  1 to 6, India argues that "cited randomly with no reference to 
specific provisions within the legislation or the specific program being challenged also fail to meet 
the higher threshold in Article  4.2 of the SCM Agreement ".189 Once again, these items are neither 
"cited randomly" nor "with no reference to  … the specific program being challenged". Instead, in 
the body of the request for consultations, Items Nos.  3 to 6 are listed with reference to the EOU 
and Sector -Specific Schemes, MEIS, and EPCG Scheme; and Items Nos.  3 and 5 contain a chapter 
expressly devoted to each of those schemes, setting out the bulk of the relevant provisions 
governing those schemes, including provisions giving reason to believe that India grants subsidies 
that are export contingent.190  
7.120.   Therefore, the Panel does not agree with Indi a's arguments that, by listing these items, 
the complainant failed to state evidence of the existence of the challenged subsidies and of their 
nature as subsidies.  
7.121.   India's  fourth and last argument is that "[a]dditionally … there is no substantive differen ce 
between the 'Request for Consultation'  … and the Request for the Establishment of Panel".191 
 
180 Section 27  of the SEZ Act.  
181 Second Schedule of the SEZ Act. See also Communication dated 22 January 2019 from the Panel to 
the parties concerning the Panel's terms of reference, the applicability of Article 4 of t he SCM Agreement,  and 
the statement of available evidence , (Annex D -2), para.  2.89 and fn 146.  
182 India's  response to Panel question No.  26, fifth para.  
183 See para.  7.83 above.  
184 Income Tax Act, Section 10AA, accessed at the link set out in Communication dated 22 January 2019 
from the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the 
SCM Agreement , and the statement of a vailable evidence, (Annex D -2), annex A, Instrument No.  26. 
See fn 133 above.  
185 See para.  7.82 above.  
186 See also paras.  7.104 -7.106  above.  
187 India's  response to Panel question No.  26, sixth para.  
188 See also paras.  7.98-7.100  above, and Communication dated 22 January 2019 from the Panel to the 
parties concerni ng the Panel's terms of reference, the applicability of Article 4 of the SCM Agreement,  and the 
statement of available evidence , (Annex D -2), paras.  2.83-2.86. 
189 India's  response to Panel question No.  26, sixth para.  
190 See paras.  7.93-7.97 above. On Items Nos.  1 and 2, see paras.  7.90-7.92 above. Item No.  6 (on 
which see also para.  7.97 above), which corresponds to Instrument No. 4 in the request for consultations and 
in the panel request, is a one -page document setting forth changes to appendix  6-B to the FTP, which relates 
to the EOU/EHTP/BTP Schemes.  
191 India's  first written submission, para.  102. See also para.  7.87 above.  WT/DS541/R  
 
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  According to India, this is evidence that the complainant also disregarded the difference in 
substantive standards between Article  4.2 of the SCM Agreement  and Ar ticle 6.2 of the DSU.192  
7.122.   It is true that "precise and exact identity" between the request for consultations and the 
panel request is not required193, and that there is often an evolution between the former and latter 
documents. However, nothing prevents compl ainants from presenting a panel request that is 
identical to their request for consultations, provided that each of these two documents meets the 
requirements set out in Articles  4.4 and 6.2 of the DSU and other applicable provisions.  
7.123.   Thus, to sum up, a re view of the statement of available evidence indicates that the 
statement of available evidence is sufficient to meet the requirements of Article  4.2 of the 
SCM Agreement , because it "state[s] … available evidence with regard to the existence and nature 
of the subsidy in question"194; and India's  arguments considered so far have not established 
otherwise.  
7.124.   In the context of the substantive meeting with the parties, the Panel asked the 
United  States to articulate how each item in its statement of available evid ence related to the 
existence of the alleged subsidy or its nature as a subsidy, and to point to the relevant provisions 
or paragraphs of the listed items.195 The Panel then gave India the opportunity to comment on the 
United  States'  response at the hearing and in writing.  
7.125.   While the Panel has based its assessment of the sufficiency of the statement of available 
evidence on the statement itself, as contained in the United  States'  request for consultations, the 
Panel notes that the United  States'  response to t he Panel's  question, too, illustrates that the 
25 legal instruments cited in the statement, themselves, provide evidence "with regard to the 
existence and nature of the subsidy in question"196, because the language of those legal 
instruments gives reason to believe that a subsidy exists, has the character of a subsidy, and is 
export contingent.197  
7.126.   In its comments on the United  States'  response, India asserts, first, that the provisions 
cited by the United  States support India's  argument that the challenged sch emes fall under 
footnote 1 of the SCM Agreement .198 The Panel considers this to be a substantive argument 
regarding the merits of the dispute, and not an argument on the sufficiency of the statement of 
available evidence under Article  4.2 of the SCM Agreemen t.  
7.127.   Second, India argues that the United  States has failed to engage with the nature of the 
legal instruments in question and, as an example, India writes that "the United  States has not 
even acknowledged that [Item No.  12] notifies ITC codes that were not  included in the harmonised 
list".199 This comment bears no relevance on the assessment under Article  4.2 of the 
SCM Agreement . The document in question makes amendments to the list of goods the export of 
which gives rise to rewards under MEIS200; observing, o r not, that these amendments relate to the 
Indian Tariff Code (ITC) classification of the products says nothing on the sufficiency of the 
statement of available evidence in this dispute.  
7.128.   Third, India argues that the United  States has selectively or incorre ctly quoted portions of 
the listed evidence. As an example, India refers to Item No.  22 (the SEZ Rules), for which the 
United  States has listed, among others, Rule 9 of the SEZ Rules; India observes that Rule 9 
pertains to exemptions provided to SEZ develo pers, and that the United  States clarified in the 
course of the hearing that it is only challenging financial contributions provided to SEZ Units (not 
developers).201 India's factual observation is correct; however, it does not render the statement of 
 
192 India's  first written subm ission, paras.  102-103. 
193 Appellate  Body Report, Brazil – Aircraft , para.  132. 
194 Article  4.2 of the SCM  Agreement.  
195 Advance Panel question No.  I, and Panel question No.  25. 
196 Article  4.2 of the SCM  Agreement.  
197 United  States'  response to Panel question No.  25, appendix 1. The United  States first provided 
appendix 1 in the course of the oral hearing.  
198 India's  comments on the United  States'  response to Panel question No.  25, first para.  
199 India's  comments on the United  States'  response to Panel question No.  25, second para.  
200 In fact, the United  States notes this in its  response to Panel question No.  25, appendix 1.  
201 India's  comments on the United  States'  response to Panel question No.  25, third and fourth paras.  WT/DS541/R  
 
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  availa ble evidence insufficient. The United  States'  listing of provisions from Item No.  22, in answer 
to the Panel's  question, is prefaced with the phrase "[n]on -exhaustive excerpts of interest to a 
subsidy analysis include", and then lists the Rule referred to by India, together with other Rules 
whose substantive relevance to the United  States'  challenge India does not contest.202 It is correct 
that in response to questioning from the Panel at the hearing and after the hearing, the 
United  States clarified that it is not challenging financial contributions granted to 
SEZ developers.203 This means that the United  States included in its response to the Panel 
question a provision that it has ultimately chosen to exclude from its challenge; but it does not 
mean that the s tatement of available evidence was not sufficient under Article  4.2 of the 
SCM Agreement  to sustain that portion of its challenge that the United  States ultimately pursued.  
7.129.   Therefore, the exchanges with and between the parties in answer to Panel question N o. 25 
do not modify the Panel's  preliminary conclusions in paragraphs 7.107  and 7.123  above, that the 
statement of available evidence included in the request for consultations was sufficient.  
7.130.   We therefore conclude that the statement of available evidence met the requirements of 
Article 4.2 of the SCM Agreement .  
7.5  The measures at issue  
7.131.   Having found that Article 27 of the SCM Agreement  no longer excludes the challenged 
measures from the application of Articles 3.1(a) and 4 of the SCM Agreement , and that the 
United  States' statement of available evidence met the requirements of Article 4.2 of the 
SCM Agreement , we proceed to examine the United States' claims of inconsistency with 
Articles  3.1(a) and 3.2 of the SCM Agreement . As an introduction to that analysis, this section 
provides a brief description of each of the measures at issue.204 
7.5.1   Export Oriented Units and Sector -Specific Schemes  
The EOU/EHTP/BTP Schemes are three schemes for which India's FTP and Handbook of 
procedures (HBP) set forth common disciplines, including conditions for participating in the 
schemes and a range of "entitlements"205 granted to participating enterprises 
("EOU/EH TP/BTP  Units", or "Units"). Two of these entitlements are at issue in this dispute. First, 
EOU/EHTP/BTP Units can import goods without payment of any customs duty.206 This exemption 
from customs duties applies to "all types of goods"207 required for the Units'  activities, expressly 
including capital goods.208 Second, EOU/EHTP/BTP Units can procure excisable goods209 free of 
central excise duties.210  
 
202 United  States'  response to Panel question No.  25, appendix 1, pp.  46-47. 
203 United  States'  response to Panel questions Nos.  74-76, paras. 119 -121. 
204 We also refer to our overview of the relevant legal instruments in Communication dated 
22 January  2019 fr om the Panel to the parties concerning the Panel's terms of reference, the applicability of 
Article 4 of the SCM  Agreement, and the statement of available evidence, (Annex D -2), paras. 2.27-2.40 (for  
the EOU/EHTP/BTP Schemes), 2.56 -2.63 ( for MEIS), 2.68 -2.77 (for the EPCG Scheme), 2.83 -2.89 ( for the 
SEZ Scheme), and 2.101 -2.107  (for DFIS).  
205 Sections 6.01, 6.11 and 6.12 of the FTP, (Exhibit USA -3). Exhibit USA -3 contains two versions of 
the FTP. The first part of Exhibit USA -3 contains excerpts from the FTP in force as of 5 December 2017; the 
second part of Exhibit USA -3 contains the full ver sion of the Foreign Trade Policy before  it was amended in 
December 2017, i.e. an outdated version of the FTP.   
206 Section 6.01(d)(ii) of the FTP. Importation includes importation from abroad and procurement from 
bonded warehouses in the Domestic Tariff Area s (DTA) in India or international exhibitions held in India. 
(Idem). The FTP defines "Domestic Tariff Area (DTA)" to mean the "area within India which is outside SEZs and 
EOU/EHTP/STP/BTP" (definition 9.16 in chapter 9 of the FTP).  
207 Section 6.01(d)(i) of the FTP.  
208 Section 6.01(d)(i) of the FTP. Section 6.04 of the Handbook of procedures , (Exhibit USA -5), sets 
forth a non -exhaustive list of "[g]oods permitted to be imported / procured from DTA" under the 
EOU/EHTP/BTP Schemes, which includes items such as r aw materials, components, capital goods (including 
certain equipment and tools), and "[a]ny other items" upon approval. A definition of "[c]apital goods" is set 
forth in definition 9.08 of Chapter 9 of the FTP.  
209 On the current scope of "excisable goods", see para. 7.229  below.  
210 Section 6.01(d)(iii) of the FTP.  WT/DS541/R  
 
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Units must commit "to export their entire production of goods and services"211, subject to 
certain limited exceptions.212 Further, each Unit must be a positive NFE earner213, a requirement 
which is met when a Unit's  total value of exports exceeds its total value of imports.214 
The schemes set forth provisions to monitor compliance with the NFE requirement.215 
Failure to ensure posi tive NFE or to abide by other obligations under the schemes may result in 
sanctions, including penalties, penal action  and the cancellation of the status of an enterprise as 
an EOU/EHTP/BTP Unit.216 
The stated objectives of the EOU/EHTP/BTP Schemes are "to p romote exports, enhance 
foreign exchange earnings, attract investment for export production and employment 
generation".217 
7.5.2   Export Promotion Capital Goods Scheme  
The EPCG Scheme exempts participants218, upon authorisation, from paying customs 
duties219 on the imp ortation of capital goods.220  
Importation under the EPCG Scheme is subject to two export obligations. First, over a 
six-year period, a scheme participant must achieve exports of the goods specified in the EPCG 
authorization equalling at least six times the duties, taxes, and cess221 saved on capital goods.222 
This is referred to as the "specific export obligation".223 
Second, with limited exceptions224, a scheme participant must maintain exports of those 
same goods above the average level of its exports of the same or similar products during the 
three -year period preceding the EPCG authorization.225 This is referred to as the "average export 
obligation".226 
 
211 Section 6.00(a) of the FTP; see also Appendices and Aayat Niryat forms, (Exhibit  USA-6), 
appendix  6D, para . (i). 
212 Section 6.08 of the FTP.  
213 Section 6.04 of the FTP; Section 6.10(a) of the HBP; Second Schedule of the SEZ Act; and 
Appendices and Aayat Niryat forms, (Exhibit  USA-6), appendix  6D, para. (ii) and appendix 6E, para. 1.  
214 The details concerning the calculation of NFE, including the calculation formula and relevant 
definitions, are set out in Section 6.10(a) of the HBP, and are addressed in our discussion of export 
contingency (section 7.10.2 ). 
215 Section 6.20 of the FTP; Section 6.12 of the HBP; and Appendices and Aayat Niryat forms, 
(Exhibit  USA-6), appendix  6E, para. 2 and appendix 6F.  
216 Sections 6.05(c) and 6.18(b) of the FTP; Appendices and Aayat Niryat forms , (Exhibit USA -6), 
appendix  6D, paras. (ii) and (ix), appendix 6F, para. 3 (ii), and appendix  6E, para. 7.  
217 Section 6.00(b) of the FTP.  
218 Participation is open to "manufacturer exporters with or without supporting manufacturer(s), 
merchant exporters tied to supporting manufacturer(s) and service providers". (Section 5.02(a) of the FTP) . 
219 The S cheme  also used to set forth exemptions from th e Integrated Goods & Services Tax (IGST) and 
Compensation Cess. (Section 5.01(a) of the FTP; India's  first written submission, para.  296). These 
exemptions appear to have expired on 31 March 2018 and are not part of our analysis and findings, see fn  373 
below.  
220 Sections 5.01(a) and 5.04(a) of the FTP. Capital goods for purposes of the EPCG Scheme are, per 
Section  5.01(i) of the FTP, those defined as capital goods in Chapter 9 of the FTP and certain items specified in 
Section  5.01(a)(ii) -(iv). 
Alternatively, if exporters pay for duties and other charges on import of capital goods upfront and in full 
in cash, they receive freely transferable duty credit  scrips ("Post Export EPCG Duty Credit Scrips") remitting 
the basic customs duty. (Section 5.12 of the FTP). These scrips are not at issue in this dispute.  
221 In India, "cess" designates a tax that is levied to raise funds for a specific purpose. The Educat ion 
Cess, for instance, collects funds to finance educational institutions. (United States' first written submission, 
fn 119).  
222 Section 5.01(c) of the FTP; Section 5.14(a) of the HBP.  
223 E.g. Section 5.09 of the FTP.  
224 Section 5.13 of the HBP.  
225 Section 5.04(b) of the FTP; Section 5.12 of the HBP; and India's  responses to Panel questions 
Nos. 51 and 52.  
226 E.g. Section 5.09 of the FTP ; India's response to Panel question No. 53.  WT/DS541/R  
 
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The scheme provides an "incentive for early … fulfilment" of these export obligations: when 
"75% or more of the spe cific export obligation and 100% of Average Export Obligation till date" 
are met within half of the required period, the "remaining export obligation shall be condoned".227 
As part of the process to apply for EPCG authorisation, applicants must provide a 
certification by a chartered engineer of the "nexus" between the capital goods to be imported and 
the manufacture of products for export228, certifying that the capital goods in question are 
"required" to manufacture specified "export product(s)".229 
Once authori sation is granted, participants' compliance with their export obligations is 
subject to regular monitoring.230 Half of the specific export obligation must be fulfilled during the 
first four years231, failing which an enterprise must pay customs duties correspo nding to the 
unfulfilled export obligation.232 Failure to meet the export obligations or to comply with any other 
applicable requirements may result in penal action .233 
The stated objectives of the EPCG Scheme are to "facilitate import of capital goods for 
producing quality goods and services and enhance India's  manufacturing competitiveness".234 
7.5.3   Special Economic Zones Scheme  
India's  SEZ Act and SEZ Rules, as amended235, are the two main legal instruments setting 
forth the framework for the SEZ Scheme. The SEZ Act "provide[s] for the establishment, 
development and management of the Special Economic Zones for the promotion of exports and for 
matters connected therewith or incidental thereto".236 Among other things, the SEZ Act and 
SEZ Rules regulate the bodies charged with approving and administering SEZs, and set forth the 
procedures for establishing SEZs, provisions on the operation of SEZs, special fiscal provisions for 
SEZs, and the conditions applying to those special provisions.  
India has submitted that an SEZ is a "distinct"237 "geographical region which provides for 
more liberal economic measures to be applicable to the Unit s set up within it, as compared to the 
rest of India".238 Further, India has pointed out that the SEZ Act defines the "domestic tariff area" 
(DTA) as the whole of India excluding SEZs, and that "export" for purposes of the SEZ Act includes 
not only "the taking of goods … out of India, from a[n SEZ]" and the supp ly of goods between 
different Units239 within an SEZ, but also the supply of goods from the DTA to a Unit or 
developer240 within an SEZ.241 
Of the special fiscal provisions applying to SEZs242, the following are at issue in this 
dispute:  
 
227 Section 5.09 of the FTP.  
228 Section 5.03(a ) of the HBP.  
229 Appendices and Aayat Niryat forms, ( Exhibit USA -6), appendix 5A ("Format of Chartered Engineer 
Certificate for Nexus under EPCG Scheme"). Similarly, the authorization holder must submit a certificate from 
the customs authority or a chartere d engineer confirming the installation of the imported capital good at the 
premises of the authorization holder. (Section 5.04(a) of the HBP).  
230 Section 5.15 of the HBP.  
231 Section 5.14(a) of the HBP.  
232 Section 5.14(c) of the HBP.  
233 Section 5.26 of the HBP.  
234 Section 5.00 of the FTP.  
235 SEZ Rules , (Exhibit USA -28), incorporating amendments to the SEZ Rules up to July 2010. 
Subsequent amendments were made to the SEZ Rules on 19 September 2018, (Exhibit USA -60), and on 
8 March 2019.  
236 Preamble of the SEZ Act.  
237 India's first written submission, para. 321 ; request for review, para. 23.  
238 India's first written submission, para. 326 ; request for review, para. 23.  See also Annex A -2, 
paras.  3.2-3.4. 
239 See para. 7.149  below, defining SEZ "Units" . 
240 See para. 7.147  below, defining SEZ "developers" . 
241 India's first written submission, para. 326; request for review, para. 23. Sections 2(i) and 2(m) of 
the SEZ Act.  See also Annex A -2, paras. 3.2 -3.4. 
242 Set forth in the SEZ Act, SEZ Rules and elsewhere: e.g. fn 244 below.  WT/DS541/R  
 
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  a. the exemption of "every De veloper and … entrepreneur" from customs duties on imports 
into, and exports from, "a Special Economic Zone or a Unit"243;  
b. the exemption of "all goods … imported by a unit or a developer in the Special Economic 
Zone" from India's  Integrated Goods and Servic es Tax (IGST)244; and  
c. the deduction, from the corporate income tax base of an entrepreneur, of the export 
earnings of the entrepreneur's SEZ Unit.245 
7.146.   These provisions refer to "developers", "entrepreneurs", and "Units", which are the 
principal economic actors setting up, and operating within, SEZs.  
7.147.   A "developer" is a person or state government that has been granted a letter of approval 
to set up an SEZ246: developers set up SEZs and develop and maintain their infrastructure.247  
7.148.   An "entrepreneur" is a person who has been granted a letter of approval to set up a Unit 
and undertake the operations authorized by that letter of approval248: entrepreneurs thus set up 
Units, and manufacture goods and render services through the Unit.249 
7.149.   A "Unit" is defined, somewhat circ ularly, as "a Unit set up by an entrepreneur in a Special 
Economic Zone".250 Units are central to the operation of SEZs, because the manufacturing of goods 
and rendering of services in SEZs (except those incidental to setting up the SEZ itself) take place 
within the Units.251  
7.150.   As will be elaborated further in discussing export contingency, Units are required in 
particular to achieve a positive NFE.252 Under the SEZ Scheme, NFE is the difference between, on 
the one hand, FOB value of exports, plus a number of cert ain other eligible "supplies", and, on the 
other hand, CIF value of imports, plus the value of goods obtained from certain other sources.253 
Compliance with the positive NFE requirement is subject to monitoring254, and a Unit's failure to 
meet the requirement makes the entrepreneur "liable for penal action" and leads to cancellation of 
the Unit's approval.255 
7.151.   Regarding the scheme's objectives, as noted at the outset, the preamble of the SEZ Act 
refers to "the promotion of exports and … matters connected therewith  or incidental thereto".256 
At the same time, India emphasizes that "the objective of the SEZ Scheme cannot be reduced to 
the promotion of exports": instead, India explains that the SEZ Act aims to achieve the "overall 
 
243 Chapeau  in Section 26(1) , Sections  26(1)(a) (for imports) and 26(1)(b) (for exports)  of the SEZ Act.  
244 Notification No. 15/2017, (Exhibit USA -27). The United States has described IGST as a multi -stage 
value added tax, with a rate ranging from 0.25% to 28% . (United States' first written submission, para. 116) . 
India has not contested the United States' desc ription of IGST. See also the Integrated Goods and Services Tax 
Act, (Exhibits USA -32 and IND -14). 
245 Second Schedule of the SEZ Act.  
246 Subsections 2(g), 3(2) -3(4) and 3(10)  of the SEZ Act. Developers and co -developers develop and 
maintain the necessary in frastructure for an SEZ, but do not engage in any export activity. (India's  response to 
Panel question No. 74).  
247 India's response to Panel question No. 74, p. 58.  
248 Subsections 2(j) and 15(9)  of the SEZ Act.  
249 India's response to Panel question No. 75, p.  58. 
250 Subsection 2(zc)  of the SEZ Act.  
251 India's responses to Panel questions Nos. 74 -75, p. 58. The United States' challenge only relates to 
the tax exemptions and deductions in question as they relate to Units. Thus, it does not extend to benefits 
provided to developers  to set up or maintain the SEZs. (United States' response to Panel question No. 74, 
para. 119.)  
252 Rule 53 of the SEZ Rules.  
253 Rule 53 of the SEZ Rules.  
254 Rules  22(3) and 54(1)  and Form I of the SEZ Rules.  
255 Form G of the SEZ Rules, setting out the letter of approval to be issued pursuant to Rule  19 of the 
SEZ Rules.  
256 Preamble of the SEZ Act.  WT/DS541/R  
 
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  economic development of areas within it s territorial control[, which] is crucial to the sovereign 
functions of a country".257 
7.152.   India refers, in particular, to Section 5 of the SEZ Act, which sets forth the considerations 
that must guide "[t]he Central Government" in discharging its functions under  the Act. These 
considerations are: the "generation of additional economic activity", the "promotion of exports", 
the "promotion of investment", the "creation of employment opportunities", the "development of 
infrastructure facilities", and the "maintenanc e of sovereignty and integrity of India, the security of 
the State and friendly relations with foreign States".258 
7.5.4   Duty -Free Imports for Exporters Scheme  
7.153.   We found that the panel request identified, as a measure, alleged export subsidies 
provided under Condit ions 10, 21, 28, 32, 33, 36, 60, 61, and 101 of Notification No.  50/2017.259 
These are the caps on the rate of import duty set out in line items 104, 229, 288, 312, 313, 327, 
430, 431, and 612, respectively, of Notification No. 50/2017.260 
7.154.   The United States re fers to these as the duty-free imports for exporters scheme (DFIS).261 
According to India, this measure is not a cohesive scheme, but just "a grouping of individual duty 
stipulations".262 Indeed, we note that the nine stipulations at issue are nine individual line items, 
with their respective Conditions, scattered among more than 600 other customs duty stipulations 
in Notification No. 50/ 2017, and they do not appear to coalesce into a cohesive scheme. 
Nonetheless, India, too, refers to this measure as DFIS263, and we, too, will refer to the nine duty 
stipulations that we have found to fall within our terms of reference as "DFIS".  
7.155.   Each of these nine duty stipulations provides that the import duty for specified goods is 
capped at zero ("nil"), provided that the c orresponding Condition is met.  
7.156.   The following table lists the challenged line item capping the import duty at zero, and the 
corresponding duty -exempt goods and Condition number.  
 
257 India's first written submission, para. 322.  
258 Section 5  of the SEZ Act.  
259 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM Agreement,  and the statement of available evidence , 
(Annex  D-2), para. 2.109.  
260 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's t erms of 
reference, the applicability of Article 4 of the SCM Agreement,  and the statement of available evidence , 
(Annex  D-2), paras. 2.104 -2.107 and fns 165 and 171 -173; Notification No. 50/2017 , (Exhibit USA -36); 
Excerpts from Notification No. 50/2017 , (Exhibit USA -38); and United  States'  first written submission, 
para. 146. 
261 E.g. United States' first written submission, para. 140; panel request, p. 3 ("duty -free imports for 
exporters program").  
262 India's first written submission, para. 382; second writte n submission, para. 191. See also 
e.g. Council for Leather Exporters Guidelines , (Exhibit IND -11). 
263 India's first written submission, para. 382; second written submission, para. 191.  WT/DS541/R  
 
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  Table 1: Line items and Conditions in Notification No. 50/2017 challenged by the 
United  States264 
Line item  Duty -exempt goods265 Condition  
104 36 items, or groups of items, used in the processing of sea -food, 
such as breadcrumbs, flavouring oil, food colours, citric acid, and 
milk protein  10 
229 27 items, or groups of items, for use in the manufacture of 
handicrafts, such as electric parts, hinges, animal hair materials 
for brushes, glass sheet, air and electric operated screw driver 
with hose and couplings, and moisture measuring tools  21 
288 Lining and inter-lining materials for use in the manufacture of 
textile or leather garments  28 
312 42 items, or groups of items, for use in the manufacture of 
leather or synthetic footwear or other leather products, such as 
buckles, buttons and snap fasteners, elastic tape, lining, 
adhesives, heels, and fittings  32 
313 18 items, or groups of items, for use in the manufacture of 
handloom, cotton or man -made made -ups, such as lace, elastic 
tape, tassel, and sewing threads  33 
327 Samples of hand knotted carpets  36 
430266 125 items, or groups of items, for use in the manufacture of 
commodities in the pharmaceutical and biotechnology sector, 
such as cell cultivation devices, low temperature freezers, 
spectrophotometers, centrifuges, x -ray diffraction equipment, 
automated sampling devices, and gas generators  60(ii)  
431 119 items, or groups of items, for research and development in 
the agro -chemical sector, such as analytical balances, 
anemometers, centrifuges, dry ice makers, health monitoring 
equipment, and incubators  61 
612 21 items, or groups of items, for use in the manufacture of 
sports goods, such as butyl bladders for inflatable balls, cork 
bottoms, table tennis rubber, and stitching thread for inflatable 
balls or sports gloves  101 
 
7.157.   Conditions 10, 21, 28, 32, 33, and 101 require the duty -exempt goods to be imported for 
use in the manufacture of specified final products for export. Further, they require that the value 
of the duty -exempt imported goods not exceed a certain percentage, ranging from 1% to 5%, of 
the FOB value of exports of those same final products during the preceding financial year.  
7.158.   In contrast, Conditions 36, 60(ii), and 61 do not contain a requirement that duty -exempt 
goods be used for manufacture  in export production. However, similar to the other six conditions 
just described, they do peg the value of qualifying imports to past exports. Specifically, 
Condition  36 requires that the total value of duty -exempt imports of samples of carpets not excee d 
1% of the FOB value of carpets exported during the previous financial year; whereas Conditions 
60(ii) and 61  require that the value of duty -exempt goods not exceed 25% and 1%, respectively, 
of the FOB value "of exports" during the preceding financial yea r.  
 
264 United  States'  first written submission, para.  146; Notification No. 5 0/2017 , (Exhibit USA -36); and 
Excerpts from Notification No. 50/2017 , (Exhibit USA -38). 
265 Enumerated in the respective line item or in the relevant List in the Annexure to 
Notification  No. 50/2017, (Exhibit USA -36). 
266 Line item 430 includes two components, subject to Conditions 60(i) and 60(ii), respectively. The 
first exempts from duties goods imported for research and development purposes, subject to fulfilling 
Condition  60(i), which does not – unlike other condition s – limit the imports that can benefit from duty -free 
treatment to a certain percentage of past exports. The United States clarified that its challenge does not 
extend to this first component of line item 430 (United States' comments on India's response to  Panel question 
No. 80, para . 158), which we therefore do not address.  WT/DS541/R  
 
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  7.159.   All nine conditions also require the importer to p roduce a certificate from the competent 
export promotion council or, in the case of Conditions 60(ii) and 61, from the Joint Director 
General of Foreign Trade, stating (a) the value of relevant exports during the preceding financial 
year, and (b) the value of goods already imported under Notification No. 50/2017 during the 
current financial year.  
7.160.   Thus, for most of these duty stipulations, the competent export promotion council is given 
an important role,  satisfying itself as to the accuracy of the data on past exports and on imports 
made under Notification No. 50/2017 and, on that basis, issuing the certificates that are necessary 
in order to benefit from zero customs duties under DFIS.267 In at least one c ase, the competent 
export promotion council requires the manufacturer -exporter to certify that the imported items 
"will not be put to any other use or sold in the market except in the manufacture of Leather 
Garments for exports", and that it "understand[s]  fully that any violation of … Notification … 
No. 50/2017 … shall be construed as malpractice" and results in liability "to penal and/or any other 
action" under applicable legislation.268 
7.5.5   Merchandise Exports from India Scheme  
MEIS provides a "reward" for "ex ports of notified goods/products … to notified markets".269 
This reward consists of "Duty Credit Scrips", which are paper -based notes that can be used to pay 
for (i)  basic and additional customs duties on the importation of goods270, (ii) central excise duties  
on domestically procured goods271, and (iii)  certain other charges and fees owed to the 
Government, such as basic and additional customs duties owed as a consequence of failing to fulfil 
one's export obligations under other schemes.272 Scrips are "freely tran sferable".273 
The value of the scrips that a recipient is entitled to is calculated by multiplying the 
FOB value of the recipient's exports of a particular ("notified") good to a particular ("notified") 
destination country market with the applicable "rate(s)  of reward" assigned to that good and 
market.274 
"Notified" goods and markets as well as the applicable reward rates are set out in 
Appendix  3B to the FTP.275 This Appendix divides export destination countries into three "country 
groups".276 It then lists the covered "notified" goods, indicating, for each notified good, the 
"MEIS  reward rate" applying to exports of the good in question to each of the three countr y 
groups.277 For each covered product, it therefore indicates three rates, the choice between the 
three being determined by the country to which the exports giving rise to the reward were made. 
Depending on the product and destination country, the reward rat es range from 0% to 5%.  
The stated objectives of MEIS are "to provide rewards to exporters to offset infrastructural 
inefficiencies and associated costs"278, and specifically "to promote the manufacture and export of 
notified goods/products".279 
 
267 Notification No. 50/2017 , (Exhibit USA -36), Conditions 10, 21, 28, 32, 33, 36, and 101; 
India's  first written submission, para. 390; second written submission, paras. 191 -194; opening  statement at 
the meeting of the Panel, para.  110; and Council for Leather Exporters Guidelines , (Exhibit IND -11). 
268 Council for Leather Exporters Guidelines , (Exhibit IND -11), Annexure III, "Specimen of affidavit to be 
submitted by manufacturer -exporter o f leather garments or merchant exporter tied -up with manufacturer 
exporter for import of lining and interlining materials in terms of serial No. 288 of Customs Notification (Tariff) 
No. 50/2017 dated 30.06.2017".  
269 Section 3.04 of the FTP.  
270 Section 3.02(i ) of the FTP.  
271 Section 3.02(ii) of the FTP.  
272 Sections 3.02(iv) and 3.18 of the FTP.  
273 Section 3.02 of the FTP.  
274 Section 3.04 of the FTP.  
275 Public Notice 2/2015 -2020,  (Exhibit USA -11), Appendix 3B . 
276 Public Notice 2/2015 -2020,  (Exhibit USA -11), Appendix 3B, table 1 . 
277 Public Notice 2/2015 -2020,  (Exhibit USA -11), Appendix 3B, table 2 . 
278 Section 3.00 of the FTP.  
279 Section 3.03 of the FTP.  WT/DS541/R  
 
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  7.6  Footnote 1 of the SCM Agreement  
7.165.   The United  States challenges the five sets of measures described in the previous section as 
prohibited export subsidies under the SCM Agreement . India argues, however, that four of those 
sets of measures (i.e. those under the EOU/EHTP/BTP Schemes, the EPCG  Scheme, DFIS, and 
MEIS) must be deemed not to be a subsidy, because they meet the conditions of footnote 1 of the 
SCM Agreement .280 
7.166.   We therefore begin by examining whether these four sets of challenged measures meet 
the conditions of footnote 1. We first se t out the applicable legal standard (section 7.6.1); we then 
apply it, in turn, to each of the four sets of measures in question, namely, certain exemptions 
under the  EOU/EHTP/BTP Schemes (section 7.6.2), the EPCG Scheme (section 7.6.3), and 
DFIS (section  7.6.4), and the provision of scrips under MEIS (section  7.6.5).  
7.6.1   The applicable legal standard under footnote 1  
7.167.   Footnote 1 of the SCM Agreement , appended to Article  1, provides that certain measures 
"shall not be deemed to be a subsidy".  
7.168.   The footnote has two main parts. The first clause of the footnote directs the i nterpreter to 
read the remainder of the footnote "[i]n accordance with the provisions of" the Note to Article  XVI 
of the GATT 1994281 and of Annexes  I to III of the SCM Agreement . The second part of the 
footnote describes the two groups of measures that "sha ll not be deemed to be a subsidy", 
provided they are also in accordance with the Note to Article  XVI and Annexes  I to III.  
7.169.   These two groups of measures are  (a) "the exemption  of an exported product from the 
duties or taxes borne by the like product when de stined for domestic consumption"; and (b) "the 
remission  of such duties or taxes in amounts not in excess  of those which have accrued".282 We 
understand the difference between these two groups of measures to be that, in the case of 
exemptions, the duty or ta x liability never arises283, whereas, in the case of remissions, the liability 
first arises, but is later remitted284, including by returning the payment if one was already made.285  
7.170.   Thus, the description of these two groups of measures in footnote 1 contains four 
definitional elements, namely, there must be (1) an exemption or remission (2) of duties or taxes 
(3) on an exported product, (4) not in excess of the duties and taxes which have accrued.286  
 
280 Regarding the remaining set of measures, i.e. the alleged subsidies under the SEZ Scheme, see 
fn 303 below.  
281 The language of footnote 1  includes the full text of the Note.  
282 Footnote 1  of the SCM  Agreement. (emphasis added)  
283 The ordinary meaning of "exemption" includes " [t]he action of exempting, or the state of being 
exempted (see exempt v. 4) from a liability, obligation, penalty, law, or authority" and, in turn, the ordinary 
meaning of the verb "exempt" includes "[t]o grant to (a person, etc.) immunity or fre edom from a liability to 
which others are subject:  a. from (the payment of) a fine, tax, etc". (Oxford Dictionaries online, definition of 
"exemption", n., meaning 2.a , https://www.oed.com/view/Entry/66070?redirectedFrom=exemption#eid  
(accessed 7 June 2019) , and " exempt", v., meaning 4.a,  
https://www.oed.com/view/Entry/66066?rskey=p32DCg&result=2&isAdvanced=false#eid  (accessed 
5 June 2019)). 
284 The ordinary meaning of "remission" includes "[r]elease from the obligation of a debt or payment", 
and "[t]he cancellation or reduction of a debt, payment, etc.". (Oxford Dictionaries online, definition of 
"remission", n., meanings 3.a, 4.a., https://www.oed.com/view/E ntry/162216?redirectedFrom=remission#eid  
(accessed 7 June 2019)).  
285 The Panel in EU – PET (Pakistan)  did not find there to be a need, in that case, to precisely demarcate 
the line between the two categories of measures covered by the footnote, observing:  
Although the two situations described in footnote 1 may be related, we see no reason why the 
issues at stake in this dispute cannot be effectively resolved with particular reference to the 
second . 
(Panel Report, EU – PET (Pakistan) , fn 93.)  
As noted in fn 286 below, Annexes  I(g), I(h), and I(i), together with the definitions in footnote 58, do 
not emphasize the distinction between the two categories of measures.  
286 In footnote 1, the "not in excess"  language appears only in the clause relating to remissions, and it is 
indeed difficult to conceive of an exemption from more than what one would be liable for in the absence of the 
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  7.171.   Footnote 1 also provides that the footnote must be r ead in accordance with the Note to 
Article  XVI of the GATT 1994 and Annexes  I to III of the SCM Agreement . As has already been 
observed, "the words 'in accordance with'  in footnote 1 may be understood as implying that 
footnote  1 is to be read 'in  agreement ', 'in conformity', or 'in harmony ' with all of the provisions 
referred to therein" .287 That is, footnote 1, the Ad Note, and the Annexes  must be read together.  
7.172.   The text of the Note to Article  XVI is repeated in its entirety in footnote 1 itself. Therefore, 
the cross -reference to that provision does not add to the text of the footnote; however, it reminds 
the interpreter that Article  XVI of the GATT 1994 forms part of the context of footnote 1.  
7.173.   Annex  I contains the illustrative list of export subsidies. Items  (g), (h), and (i) list, as 
export subsidies, the exemption, remission, deferral, or drawback of certain indirect taxes and 
import charges on exported products, in certain defined circumstances.288 Because footnote 1 
must be read in accordance with Annex  I, a measure falling within the definition of any of items 
(g), (h), or (i) would not benefit from the shelter of footnote 1.  
7.174.   Thus, item (g) identifies as a prohibited export subsidy:   
The exemption or remission, in respect of the production and distribution of exported 
products, of indirect taxes in excess of those levied in respect of the production and 
distribution of like products when sold for domestic consumption.289 
7.175.   As a result, to meet the conditions of footnote 1, any exemption or remission of "indirect  
taxes" "in respect of the production and distribution of exported products" must not be "in excess 
of those levied in respect of the production and distribution of like products when sold for domestic 
consumption ", as it would  otherwise not be "in accorda nce with" Annex  I(g).  
7.176.   Turning to item (h) , this identifies as a prohibited export subsidy  the exemption, 
remission, or deferral of prior -stage cumulative indirect taxes on goods and services used in the 
production of exported products, when the same  is in excess of the exemption, remission or 
deferral of  "like … taxes" on goods and services used in the production of like products destined for 
domestic consumption. As a result, such an exemption would not benefit from the shelter of 
footnote 1, because it w ould not be "in accordance with" Annex  I(h).  
7.177.   At the same time, Annex  I(h) carves out from that prohibited export subsidy the situation 
in which the "exemption, remission or deferral" relates to "prior -stage cumulative indirect taxes … 
levied on inputs tha t are consumed  in the production  of the exported product (making normal 
allowance for waste)".290 As a result, an exemption, remission, or deferral that complies with this 
condition, and is otherwise in accordance with footnote 1, is not deemed to be a subsi dy.  
7.178.   Similarly, under footnote 1 read together with  Annex  I(i), for a "remission or drawback" 
(which "includes … exemption or deferral"291) of import charges to benefit from the shelter of 
footnote  1, such remission or drawback must not be "in excess of [import charges] levied on 
imported inputs that are consumed in the production  of the exported product".292  
7.179.   Further, footnote 58, which is appended to each of Annexes  I(g), I(h), and I(i), elaborates 
on the scope of the terms "remission", and "remission or drawback", as well as providing 
definitions for the types of duties and taxes referred to in Annexes  I(g), I(h), and I(i). When 
 
exemption. At the same time, Annexes  I(g), I(h), and I(i), invoked by Indi a in this dispute, set out clauses that 
refer to two or more of exemptions, remissions, deferrals and drawbacks, together; further footnote 58 
explains that "'[r]emission'  of taxes includes the refund or rebate of taxes", and "'[r]emission or 
drawback'  includes the full or partial exemption or deferral of import charges"; in line with this, while noting 
the distinction between exemptions and remissions, we do not emphasize it further in this outline of the legal 
standard.  
287 Appellate Body Report , EU – PET (Pakistan) , para. 5.105.  
288 Items (e) and (f), which have not been invoked in this case, relate instead to the exemption or 
remission of direct  taxes and deductions from the base from which to calculate such taxes.  
289 Fn omitted.  
290 Annex  I(h) of the SCM  Agree ment. (emphasis added)  
291 Footnote  58 of the SCM  Agreement.  
292 Annex  I(i) of the SCM  Agreement. (emphasis added)  WT/DS541/R  
 
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  Annexes  I(g), I(h), and  I(i) are read together with footnote 58, each of  these covers both 
remissions and exemptions.293 
7.180.   Thus, to summarize, when footnote 1 is read together with Annexes  I(g), I(h), and I(i), 
each of these paragraphs of Annex  I first identifies the nature of the remission or exemption at 
issue294, and then sets fo rth a requirement that the remission or exemption not exceed the 
benchmark set out in the item in question.  
7.181.   Next, footnote 1 must also be read "in accordance with" Annex  II to the SCM Agreement . 
Annex  II sets forth "Guidelines on Consumption of Inputs in the Production Process". As Annex  II 
itself recalls, both items (h) and (i) in Annex  I refer to "inputs that are consumed in the production 
of the exported product"295, and the Guidelines in Annex  II relate to the examination, for that 
purpose, of "whether i nputs are consumed in the production of the exported product".296  
7.182.   Part II of these Guidelines is expressly directed at this examination "as part of a 
countervailing duty investigation".297 This, however, does not make Annex  II irrelevant outside the 
context o f countervailing duty investigations. While some of the provisions in this Annex  (such as 
those envisaging that the investigating authority carry out "certain practical tests") are not directly 
applicable outside the context of countervailing duty investig ations, Annex  II helps inform the 
understanding of footnote 1 also beyond the context of countervailing duty investigations.  
7.183.   Footnote 61, appended to Annex  II, defines "inputs that are consumed in the production of 
the exported product", providing that:  
Inputs consumed in the production process are inputs physically incorporated , energy, 
fuels and oil used in the production process and catalysts which are consumed in the 
course of their use to obtain the exported product.298 
7.184.   Annex  II(II)(3) provides further g uidance on the interpretation of this phrase, by 
stipulating that:  
Investigating authorities should treat inputs as physically incorporated if such inputs 
are used in the production process and are physically present in the product exported . 
The Members no te that an input need not be present in the final product in the same 
form in which it entered the production process.299 
7.185.   Finally, footnote 1 refers to Annex  III to the SCM Agreement . Annex  III sets forth 
guidelines for the examination of "substitution drawb ack systems", which are a particular type of 
drawback system envisaged in Annex  I(i). While the present dispute does not concern the issue of 
substitution drawback systems, Annex  III, too, informs the understanding of footnote 1 of the 
SCM Agreement .300 
7.186.   In reading footnote 1 together with the provisions of the Annexes  that are directly relevant 
in this case, we therefore identify four steps for our analysis of whether the measures in question 
meet the conditions of footnote 1. We summarize these steps in the table below.  
 
293 In light of footnote 58 , Annex  I(g) includes the exemption, remission, refund, or rebate of indirect 
taxes; Annex  I(h) includes the exemption, remission, deferral, refund, or rebate of prior -stage cumulative 
indirect taxes; and Annex  I(i) includes the remission, drawback, exemption, or deferral of import charges.  
294 It does so through elements that are parallel to those we have identified as eleme nts 1 to 3 in 
para. 7.170  above. In particular, each of Annexes  I(g), I(h), and I(i) identifies the type of duties or taxes 
concerned ( which we have referred to as element 2)  and clarifies the required relationship to the exported 
product ( which we have referred to as element 3) . 
295 Annex  II(I)(2) of the SCM  Agreement . 
296 Chapeau of Annex  II(II) of the SCM Agreement . 
297 Chapeau  of Annex  II(II) of the  SCM Agreement . 
298 Emphasis added.  
299 Emphasis added.  
300 Appellate Body Report, EU – PET (Pakistan) , para.  5.111 and fn 246 . WT/DS541/R  
 
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  Table 2: Steps in the Panel's analysis under footnote 1 and Annexes I(g), I(h), and I(i)  
 Footnote 1  Annex  I(g) Annex  I(h) Annex  I(i) 
(1) Exemption or 
remission  Exemption or remission, 
including (footnote 58) 
refund or rebate  Exemption, remission, 
or deferral, including 
(footnote  58) refund or 
rebate  Remission or drawback, 
including (footnote 58) 
full or partial exemption 
or deferral  
(2) of duties or taxes  of indirect taxes (defined 
in footnote  58) of prior -stage 
cumulative indirect 
taxes  
(defined in footnote  58) of import charges 
(defined in footnote  58) 
(3) on an exported 
product  in respect of the 
production and 
distribution of exported 
products  on inputs that are 
consumed in the 
production of the 
exported product 
(defined in footnote  61; 
see also Annex  II) on imported inputs that 
are consumed in the 
production of the 
exported product 
(defined in footnote  61; 
see also Annex  II) 
(4) not in excess of 
the duties and 
taxes which have 
accrued  not in excess of those 
levied in respect of the 
production and 
distribution of like 
products when sold for 
domestic consumption  (not in excess of those) 
levied on those inputs301  not in excess of those 
levied on those inputs 
(or on substitute inputs 
in case of sub stitution 
drawback, on which see 
Annex  III)302 
7.187.   As with any framework for analysis, we are mindful that these steps are not isolated from 
each other, and that each measure must be viewed as a whole in assessing its consistency with 
footnote 1.  
7.188.   With this in mind, w e now turn to examine whether the four measures at issue meet the 
conditions of footnote 1, read together with the relevant Annexes  to the SCM Agreement . To recall, 
if they do, they are "not …  deemed to be a subsidy".303 
7.6.2   Whether the  Export Oriented Un its and Sector -Specific Schemes  meet the 
conditions of footnote 1  
7.189.   India argues that the exemptions from customs and excise duties under the 
EOU/EHTP/BTP  Schemes meet the conditions of footnote 1 of the SCM Agreement .304 Specifically, 
 
301 Annex  II(I)(2) describes this requirement as not "in excess of the amount of such taxes actually 
levied on inputs that are consumed in the production of  the exported product".  
302 Annex  II(I)(2) describes this requirement as not "in excess of those actually levied on inputs that are  
consumed in the production of the exported product".  
303 Thus, when all the relevant conditions are met, footnote 1 excludes a measure from the definition of 
a subsidy, and therefore from the application of the prohibition on export subsidies in Article 3 of the 
SCM Agreement . It therefore acts, vis-à-vis Article 3, as an excluding provision. We have discussed excluding 
provisions in paras.  7.7-7.12 above. We allocate the burdens under footnote 1 accordingly.  
We note that for the SEZ Scheme, neither party has raised footnote 1 of the SCM Agreement . For this 
scheme, India chose not to address at all the United States' arguments on the e xistence of a subsidy under 
Article 1 (on the basis that the United States had not established export contingency), and did not raise 
footnote 1 of the SCM Agreement  in this context. India's first written submission, para. 329; second written 
submission, p aras. 187-189. In response to a question from the Panel, India confirmed its choice not to 
address the question of the existence of a subsidy; in response to another question, India "accept[ed] its 
burden of raising footnote 1." India's responses to Panel questions Nos. 64 and 90. In these circumstances, the 
Panel does not consider it appropriate to examine the applicability of footnote 1 to the SEZ Scheme . 
304 We limit our examination to the exemptions from customs and excise duties under the 
EOU/EHTP/BTP  Schemes. In its first and second written submissions, the United  States only articulated a 
challenge with respect to these exemptions. (United  States'  first written submission, paras.  38, 40 -41, 44, and 
46; second written submission, paras.  79 and 92). It di d not articulate a challenge  in respect of the exemptions 
from IGST and compensation cess, despite mentioning compensation cess  in its introductory overview of the 
measures . (United  States'  first written submission, para. 37). Only after its second written  submission did the 
United  States refer  also to  the exemptions from IGST and compensation cess in its arguments on the merits. 
(United  States'  opening statement at the meeting of the Panel, para.  10; response to Panel question No.  48, 
paras.  75 and 77 -78). 
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  according to India, the exemption from customs duties meets the conditions of footnote 1 read 
together with Annex  I(i)305 or, alternatively, with Annex  I(g).306 And the exemption from central 
excise duties meets the conditions of footnote 1 read together with Annex  I(h).307 We examine 
these in turn.  
7.6.2.1   Whether the customs dut y exemption meets the conditions of footnote 1 read 
together with  Annex  I(i) 
7.190.   We begin by examining whether the exemption from customs duties meets the conditions 
of footnote 1 read together with and Annex  I(i) of the SCM Agreement .  
7.191.   We recall our discussion of the legal standard under footnote 1 and the relevant 
Annexes  in the previous section. In accordance with that discussion, to ascertain whether the 
challenged customs duty exemption under the EOU/EHTP/ BPT Schemes is not "deemed to be a 
subsidy" by virtue of footnote 1 together with Annex  I(i), we will examine whether the exemption 
constitutes:   
(1) a remission, drawback, exemption or deferral;  
(2) of import charges;  
(3) on imported inputs that are consumed in the production of the exported product;  
(4) not in excess of those levied on those inputs.308 
7.192.   It is not disputed that the customs duty exemption under the EOU/EHTP/BTP  Schemes 
constitutes (1)  an exemption or remis sion309 (2) of import charges.310  
 
We note that the Panel's  Working Procedures and timetable envisaged a single substantive meeting, 
after the filing of the first and second written submissions; and, as a result of this, the Panel's  Working 
Procedures required the parties to present the facts of the case an d their arguments in their first written 
submission. (Working Procedures (Annex A -1), para.  3(1)(a)). We further note that the United  States 
requested, and insisted on, proceedings with a single substantive meeting, or even with no substantive 
meeting at a ll, despite India's  opposition; and throughout the proceedings, the United  States insisted that the 
Panel hold a single substantive meeting. Considering all these circumstances together, we see no reason to 
allow a departure from the requirement in the Pan el's Working Procedures that each party articulate its prima 
facie case  in the first written submission, by allowing the United  States to pursue new elements of the 
challenged measures at the stage of the single substantive meeting, after the filing of bot h the first and 
second  written submissions. Further, pursuant to the revised FTP which came into force on 5  December 2017, 
the exemption from IGST and compensation cess only applied through the end of March 2018 . 
(Section  6.01(d)(ii)  of the FTP ). For these  reasons, we will not consider further the United  States'  arguments 
concerning the exemptions from IGST and compensation cess . 
305 India's  first written submission, paras.  197-202 and 210 -211; second written submission, para.  79; 
and opening statement at the  meeting of the Panel, para.  57. 
306 India's  first written submission, paras.  206-209. 
307 India's  first written submission, paras.  203-205; second written submission, para.  79; and opening 
statement at the meeting of the Panel, para.  57. 
308 Schemes meeting the  first three conditions, but allowing for excess remission, have been found to be 
a subsidy only to the extent of the excess remission. (Appellate Body Report, EU – PET (Pakistan) , 
para. 5.134 ). 
309 In answering a question from the Panel, India described the  schemes as providing for the remission 
of, rather than exemption from, duties or taxes. (India's  response to Panel question No.  46, first and 
second  para.). The Panel recalls its understanding that in the case of an exemption, the duty or tax liability 
does not arise, whereas in the case of a remission, the liability first arises, but is later remitted, including by 
returning the payment if one was already made. (See para. 7.169  above). Under the challenged schemes, 
India itself has explained that importation is duty -free, and liability for the customs duties only arises if 
ultimately the goods are sold in the domestic tariff area. (See e.g. India's  second written submi ssion, 
para. 75). Therefore, the Panel considers that the schemes are properly characterized as providing for the 
exemption  from duties, rather than for the remission of duties.  
310 The exemption is set forth in Section 6.01(d)(ii)  of the HBP. The United  States described the 
exemption and the relevant import charges in its first written submission, paras.  37-40 and its response to 
Panel question No.  48, para.  76. India's  reliance on footnote 1  and Annex  I(i) is premised on the position that 
the rele vant aspect of the EOU/EHTP/BTP Schemes sets out exemptions from import charges. (India's  first 
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  7.193.   Regarding the third element set out above, India argues that the customs duty exemption 
for goods imported under the EOU/EHTP/BTP  Schemes is only available for "approved activities", 
which are limited to the production of goo ds (or services) for export. Therefore, according to India, 
the exemption is limited to inputs consumed in the production of exported products and thus 
meets the conditions of footnote 1 read together with Annex  I(i).311 India adds that in the limited 
circum stances in which sales to the domestic tariff area are permitted, such sales "are subject to 
payment of duties as well as reversal of customs duties", which are "aggregated on the basis of 
[Standard Input Output Norms ] or other norms established by the Nor ms Committee, to ensure 
that the amounts to be reversed are the amounts that were actually due".312 
7.194.   However, the United  States argues that the schemes do not meet the third element set out 
above. According to the United  States, the EOU/EHTP/BTP Schemes are n ot at all designed to 
ensure, and do not ensure, that the duty -free treatment is afforded only to inputs "consumed in 
the export production process", as required by footnote 1 with Annex  I(i).313  
7.195.   The United  States articulates a number of ways  in which, in i ts view, the 
EOU/EHTP/BTP  Schemes fail to limit the import duty exemption to inputs consumed in the 
production of exported products. In particular, first, the United  States argues that the schemes 
make the exemption available for the importation of goods w hose very nature means that they do 
not constitute inputs consumed in the production of products. According to the United  States, this 
is the case of capital goods314 and of certain other goods named in the applicable legal 
instruments.315 Second (and related to the previous point), the United States points out that the 
schemes also make  the exemption available for the importation of "any other items", with no 
requirement that such items be inputs consumed in the production of exported products.316 Third, 
the sch emes also exempt from customs duties the importation of "certain specified goods for 
creating a central facility"; according to the United  States, this means that those goods are not 
intended (and not required) to be consumed in the production of exported products.317 
We examine these arguments, and India's  response, in turn.318 
 
written submission, paras.  197-202 and 210 -211; second written submission, paras.  69-79; and opening 
statement at the meeting of the Panel, paras.  51-57). 
311 India's first written submission, para.  198; second written submission, para.  73; and responses to 
Panel questions Nos.  43, 44, and 45, pp. 34 -36. 
312 India's  second written submission, para.  75. See also e.g. opening statement at the meeting of the 
Panel, para s. 53-57. 
313 United  States'  second written submission, para.  82. See also ibid. paras.  67, 81 -86, and 59; opening 
statement at the meeting of the Panel, paras.  48 and 49; closing statement at the meeting of the Panel, 
para. 3; response to Panel question No.  40, para.  57; and comments on India's  response to Panel question 
No. 43, para.  94. 
314 United  States'  second written submission, paras.  83-86; response to Panel question No.  40, para.  57. 
315 United  States'  response to Panel question No.  40, para.  57. See als o response to Panel question 
No. 39, para.  56. 
316 United  States'  response to Panel question No.  40, para.  58; comments on India's  response to Panel 
question No.  43, para. 98. 
317 United  States'  second written submission, para.  89; response to Panel question N o. 40, 
para. 59; comments on India's  response to Panel question No.  43, para.  97; and Section 6.01(f)  of the FTP .  
The United  States also argues that the requirement, in the schemes , that imported goods shall be 
"utilized" for export production "is not equ ivalent to requiring them to be 'consumed in ' the exported product" . 
(United  States'  response to Panel question No. 40, paras.  61 and 63 ; second written submission, paras.  82-86; 
comments on India 's response to Panel question No. 43, para. 95; and Section 6.01(d)(i) of the FTP ). We do 
not consider that WTO law prescribes the specific terminology that Members must use in implementing their 
WTO obligations in domestic legal instruments. Therefore, we do not consider that the use of the word 
"utilized"  in the challenged schemes, in itself, demonstrates an inconsistency with footnote 1 read together 
with Annex  I(i). 
318 We note that India also argues that the United  States has failed to establish the fourth element , that 
is, the existence and degree of an excess exemption. However, the United  States explains that this response 
from India misses the point, because "[b]efore reaching the question of whether a remission was in excess of 
the import charges levied, one must first determine whether, as part of th e drawback scheme, imported inputs 
were consumed in the production of an exported product". (United  States'  second written submission, 
para. 82). We agree with the United  States that the question whether the duty -exempt goods are at all inputs 
consumed in the production of the exported product (third element)  is one that precedes the question of 
excess  remission (fourth element ). We find, below, that the third element  is not met.  WT/DS541/R  
 
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  7.6.2.1.1   The nature of certain goods covered by the exemptions  
7.196.   The parties disagree on whether a number of goods whose importation is exempt from 
customs duties under the EOU/EHTP/BTP  Schemes a re inputs consumed in the production of an 
exported product, in accordance with footnote 1 read together with Annex  I(i).  
7.197.   The FTP provides that EOU/EHTP/BTP Units may import without payment of customs duties 
"all types of goods, including capital goods, r equired for its activities"319, and sets forth the 
following definition of capital goods:  
"Capital Goods" means any plant, machinery, equipment or  accessories required for 
manufacture or production, either directly or indirectly, of goods or for  rendering 
services, including those required for replacement, modernisation, technological 
up-gradation or expansion. It includes packaging machinery and equipment, 
refrigeration equipment, power generating sets, machine tools, equipment and 
instruments f or testing, research and development, quality and pollution control.320 
7.198.   The HBP contains a more detailed, non -exhaustive listing of goods "permitted to be 
imported" (or procured from the domestic tariff area).321 This list includes a large number of items 
that the HBP itself labels as "capital goods", including for example diesel generator sets, captive 
power plants, modular office furniture, and many others322, as well as "[r]aw materials for making 
capital goods for use within unit".323 In addition, the list incl udes "other[]" items such as, for 
example, prototypes, drawings, and office equipment including multi -line telephone systems, fax 
machines, and servers.324  
7.199.   The SCM Agreement , at footnote 61, defines inputs consumed in the production process as 
comprising th ree categories of goods, as follows:  
Inputs consumed in the production process are [1] inputs physically incorporated, 
[2] energy, fuels and oil used in the production process and [3] catalysts which are 
consumed in the course of their use to obtain the ex ported product.325 
7.200.   The structure of the sentence, with the phrase "inputs consumed in the production 
process", followed by the verb "are", followed in turn by the three categories of goods, conveys 
that the three listed categories exhaust  the scope of "input s consumed in the production process".  
7.201.   As regards "inputs physically incorporated", Annex  II(II)(3)  further provides that 
"[i]nvestigating authorities should treat inputs as physically incorporated if such inputs are used in 
the production process and are  physically present  in the product exported", even in a different 
form.  
7.202.   As defined in the legislation governing the EOU/EHTP/BTP Scheme s, capital goods are 
"plant, machinery, equipment or accessories", which are "required for manufacture or production, 
either directly or indirectly".326 These include, according to the same legislation, packaging 
 
319 Section 6.01(d)(i) of the FTP.  
320 Section 9.08 of the FTP.  
321 Section 6.04 of the HBP.  
322 Section 6.04(b) of the HBP. There is some divergence on whether certain goods are capital goods. 
For example, the HBP lists office furniture as a capital good, whereas the United  States has submitted that 
office furniture is not a capital good. (Section 6.04(b)  of the HBP; United  States'  response to Panel question 
No. 39, para.  56). This divergent characterization extends to other items benefiting from duty exemptions, 
such as security systems, projectors, and data transmission cables. (S ection 6 .04(b)  of the HBP; 
United  States'  responses to Panel questions Nos.  39-40, paras.  56-57). For purposes of WTO law, however, the 
relevant question is not whether the goods are capital goods, but whether they are inputs consumed in the 
production of the expo rted product.  
323 Section 6.04(c) of the HBP.  
324 Section 6.04(d) of the HBP.  
325 Emphasis added.  
326 See paras.  7.197 -7.198  above. This definition i s consistent with a widely shared  notion of capital 
goods  as tangible and durable assets, such as buildings, machinery, equipment, vehicles and tools , used to 
produce go ods or services. For example, dictionary definitions include " the buildings, machines, and equipment 
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  machinery, power generating sets, testing equipment, fork lifts, and many others. By their very 
nature, these goods are not "physically incorporated" in the goods or services they are used to 
produce, as envisaged in footnote 61, nor are they "physically present", even in a different form, 
in the final product, as envisaged in Annex  II(II)(3) . Capital goods also do not fall under any of the 
other listed categories in f ootnote 61, because they are not energy, fuels, oil, or catalysts.   
7.203.    Similarly, certain other items expressly listed in Section 6.04 of the HBP are not energy, 
fuels, oil, or catalysts, and are also not of a nature as to be "physically incorporated" in the  
product they are used to produce.327  
7.204.   On this basis, we reach the preliminary conclusion that capital goods as defined in the FTP, 
and certain other goods the importation of which is free of customs duties under the 
EOU/EHTP/BTP  Schemes, are not "inputs con sumed in the production of the exported product", for 
purposes of Annex  I(i). India however makes a number of contrary arguments, which we now turn 
to consider.  
7.205.   Regarding capital goods, India argues that they fall within the definition of inputs 
consumed  in the production of the exported product, within the meaning of Annex  I(i).328  
7.206.   First, India argues that imported capital goods are inputs within the meaning of Annex  I(i) 
because they "contribute  to the cost of the final exported product ".329 India notes that  a duty 
drawback scheme is meant to offset the cost impact of import duties on inputs incorporated in 
exported products . According to India , since capital goods contribute to the final cost of the 
exported product, capital goods must  therefore fall within the meaning of inputs covered by 
Annex  I(i) with footnotes 1 and  61. 
7.207.   However, footnote 1 with Annex  I(i) only allows for the exemption from customs duties on 
"inputs that are consumed in the production of the exported product". Contributing to a 
product's  cost is not the same as being "consumed" in the production of that product. Indeed, 
under the definition provided by f ootnote 61, whether goods are "consumed" does not depend on 
whether they contribute to the cost of the final product.  
7.208.   Second, India notes that the EOU/EHTP/BTP Schemes set forth depreciation rates for 
computers, computer peripherals, and other c apital goods. According to India, this shows that the 
schemes "calculate[]  the manner in which capital goods are 'physically incorporated ' in the 
production process of exported products".330 
7.209.   Depreciation is an accounting method for  allocating the cost of a tangible asset over its 
useful life and account s for the asset's  decline in value .331 Depreciation rules reflect the notion that 
capital goods are durab le assets for repeated use in the production of other goods . The value of 
 
that are used to produce products or provide services ", and "economic goods (e.g. railways, ships, machinery, 
buildings) destined for use in production (as  opposed to consumers'  goods )". (Cambridge dictionary  online, 
definition of "capital goods" , https://dictionary.cambridge.org/us/dictionary/english/capital -goods  (accessed  
1 February 2019); Oxford English Dictionary online, definition of "capital goods" in capital, adj. and n., S3, 
http://www.oed.com/view/Entry/27450?redirecte dFrom=capital+goods#eid216882892  (accessed 
16 April 2019) (emphasis original)).  
327 E.g. "[r]aw materials for making capital goods for use within unit", and prototypes. See para.  7.198  
above.  
328 India's first written submission, para. 199; second written submission, paras.  49-55. 
329 India's first written submission, para. 199. 
330 India's first written submission, para. 201. See also ibid. para.  200; second written submission, 
paras.  53-54 and 78; and Section 6.37 of the HBP.  
331 Depreciation is defined as " the amount by which something, such as a piece of equipment, is reduced 
in value in a company 's financial accounts, over the period of time it has been in use. The loss in value reduces 
a company 's profits, and the amount of tax it must pay ", and "fall in the market value of an ( esp. durable) 
asset, brought about by age, wear and tear, etc.; a conventional allowance made for this in balance sheets, 
etc.". (Cambridge dictionary  online, definition of  "depreciation" , 
https://dictionary.cambridge.org/us/dictionary/english/depreciation  (accessed 1 February 2019); Oxford 
dictionary online, definition of "depreciation"  
https://www.oed.com/view/Entry/50423?redirectedFrom=depreciation#eid  (accessed 11 June 2019) ). WT/DS541/R  
 
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  capital goods decreases during their life cycle as reflected in the depreciation rates .332 However, 
the fact that a good depreciates in value does not mean that it is "physically incor porated" into 
another product, nor does the existence of depreciation rules evidence physical incorporation . 
In fact, the very reason why depreciation rules are necessary is precisely that capital goods are 
not consumed in the production process – i.e. the  opposite of India's  argument. We therefore 
reject India's arguments based on the use of depreciation rules . 
7.210.   Third, India notes that footnote 61 of the SCM Agreement , which defines inputs consumed 
in the production process, includes in that definition catalysts, which undergo no permanent 
chemical change . According to India, it would therefore be "counter -intuitive" not to include in the 
same definition capital goods, which depreciate over time and use.333 
7.211.   However, as noted above, footnote 61 sets forth an exhaustive definition of inputs 
consumed in the production process, and not merely an illustrative list of such inputs. In setting 
forth the three categories of goods that are "inputs consumed in the produ ction process", the 
drafters explicitly chose to list catalysts in addition to inputs that are physically incorporated334, 
and not capital goods.335, 336 Thus, the fact that catalysts are listed in footnote  61 does not 
overcome the fact that capital goods are no t.  
7.212.   Fourth, India argues that to establish that the duty -exempt goods are not inputs consumed 
in the production of the exported product, the United  States must provide "a technical, data -driven 
analysis", in accordance with Annex  II of the SCM Agreement .337 India has also argued that to 
satisfy this burden, the United  States must carry out a countervailing duty investigation.338 India 
presents this as a cross -cutting argument, pertaining to the legal interpretation of footnote 1 and 
Annex  II339, and therefore val id also for the EPCG Scheme, MEIS, and DFIS.340 
7.213.   Annex  II sets out "guidelines on consumption of inputs in the production process", for 
purposes of Annexes  I(h) and I(i). As set out at para graphs  7.181 -7.184 , footnote 1 must be read 
"in accordance with" Annex  II.  
7.214.   However, India errs in the manner in which it seeks to rely on Annex  II. First, the issue 
before us is whether the goods that can be imported duty -free under the EOU/EHTP/BTP Schemes 
are of a kind that can even qualify as inputs consumed in the production of an exported product. 
That is, we are faced with the threshold question of whether footnote 1 applies to the schemes at 
issue, and in particular with what we have described as the third element in the test under 
 
332 For example, the depreciation rates for "other  capital goods" in the EOU/EHTP /BTP Schemes 
are: 4% for every quarter in first year, 3% for every quarter in second and third year, 2.5% for every quarter 
in fourth and fifth year, 2% for every quarter thereafter . (Section 6.37(b) of the HBP).  
333 India's second  written submission, para. 54. 
334 We note that contrary to India's  argument, nothing in footnote 61  suggests that catalysts are 
considered to be "physically incorporated" in the exported product.  
335 The Tokyo Round precursors to Annexes  I(i) and I(h) of the SCM Agreement  referred to "goods that 
are physically incorporated". D uring the Uruguay Round negotiations, proposals were made to replace the 
"physical incorporation test" and include goods, inputs or "auxiliary materials" not physically incorporated, such 
as capital goods, energy, and fuel. Ultimately, the drafters replace d the references in the Illustrative List to 
goods "physically incorporated" with "inputs that are consumed in the production of the exported product ", and 
introduced footnote 61 to define "inputs consumed in the production process" as including not only p hysically 
incorporated inputs but also energy, fuels, oil, and catalysts. They did not however include capital goods in this 
definition . 
336 In their arguments, India and the United  States also point to the discussions among WTO Members 
on the definition of "inputs consumed in the production process", including concerning the treatment of capital 
goods. (India's  second written submission, fns 7 and 52; United  States'  opening statement at the meeting of 
the Panel, paras.  43-46). These discussions took place as  part of the work on Implementation -Related Issues 
and Concerns as well as in the context of the Negotiating Group on Rules. These discussions, however, 
evidence the different points of view of various Members, and not the common understanding of WTO Membe rs 
concerning the inclusion of capital goods in the definition of "inputs consumed in the production process".  
337 India's  second written submission, para.  72. See also India's first written submission, paras.  131-134 
and 201; second written submission, para . 39; opening statement at the meeting of the Panel, paras.  46-47; 
and comments on the United  States'  response to Panel question No.  36, fifth para.  
338 E.g. India's  second written submission, para.  39; comments on the United  States'  response to Panel 
questi on No.  36, fifth para.  
339 E.g. India's  first written submission, paras.  131-134. 
340 Our observations in paras.  7.213 -7.215  also apply to these three other schemes.  WT/DS541/R  
 
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  footnote  1. Instead, the  "quantitative analysis of the amounts and prices of the inputs 
consumed "341 proposed by India presupposes  (through the reference to "inputs consumed") the 
existence of a scheme that meets the first three elements of the test under footnote 1, and it 
asks:  is there excess remission and, if so, in what amount (fourth element) ?  
7.215.   Second, Annex  II(II) does not stand for the proposition, put forward by India, that "any 
contention regarding whether or in what quantity inputs are 'consumed'  … in a duty drawback … 
scheme is to be examined by an investigating authority".342 It is true that Pa rt II of Annex  II is 
expressly addressed to "investigating authorities" "as part of a countervailing duty 
investigation".343 This provision could apply, therefore, in the context of a countervailing duty 
investigation conducted pursuant to Part V of the SCM Agreement . However , this does not mean 
that a complainant is obliged to carry out a  countervailing duty investigation before it can 
challenge a measure that might fall under Annex  II. While footnote 35 of the SCM Agreement  
makes it clear that the provision s of Part  II and III "may" be invoked in parallel with the provisions 
of Part V, there is no suggestion that Parts  II and V must always be invoked in parallel.  
7.216.   Therefore, India has not rebutted the United  States'  showing that the 
EOU/EHTP/BTP  Schemes exem pt from customs duties inputs that are not consumed in the 
production of the exported products, namely, capital goods and certain other goods listed in 
Section  6.04 of the HBP that, like capital goods, are not energy, fuels and oil, catalysts, or inputs 
physically incorporated in the exported product. Therefore, this duty exemption does not meet the 
conditions of footnote 1 read together with Annex  I(i) to the SCM Agreement . 
7.6.2.1.2   "Any other items"  
7.217.   In addition, we recall that the schemes also allow the exemption from customs duties, 
upon application, for the importation of "[a]ny other item[]" not expressly listed in Section 6.04 of 
the HBP.344 The United  States argues that this too evidences that the duty exemption is not limited 
to inputs consumed in the productio n of exported products.345 India responds that the competent 
authority has the discretion to dismiss applications and the United  States had not demonstrated 
that it would not use that discretion to dismiss applications not meeting the requirements of 
footnot e 1.346  
7.218.   We have found that the FTP and HBP expressly provide for the duty -free importation of 
items that do not qualify as inputs consumed in the production of an exported product, and we are 
therefore not persuaded by India's  response. We also note that th e letter of permission relied on 
by India provides that "[i]mport/local purchase of all items except those listed in prohibited list  for 
import/export will be permitted".347 As a result, we are not persuaded that under the challenged 
schemes, the competent a uthority would dismiss applications that are not compliant with 
footnote  1. Therefore, the schemes fail to meet the conditions of footnote 1 and Annex  I(i) also to 
the extent that the competent authority approves the duty -free importation of other items th at are 
not inputs consumed in the production of the exported product.  
7.6.2.1.3   Goods imported " for creating a central facility"  
7.219.   The EOU/EHTP/BTP  Schemes , under Section 6.01(f) of the FTP,  also exempt from customs 
duties the importation of "certain specified goods for creating a central facility". According to the 
 
341 India's  second written submission, para.  39. 
342 India's  second written submission, para.  39. 
343 Chapeau  of Annex  II(II) of the  SCM Agreement . 
344 Section 6.04(f) of the HBP.  
345 United  States'  response to Panel question No.  40, para.  58; comments on India's  response to Panel 
question No.  43, para.  98. 
346 India's  comments on United  States'  response to Panel question No. 40, first para . (referring to 
Appendices and Aayat Niryat forms , (Exhibit USA-6), appendix 6D "Format for Letter of Permission") . 
347 Appendices and Aayat Niryat forms , (Exhibit USA-6), appendix 6D "Format for Letter of Permission" .  
India submitted copies of issued letters of permission f or illustration . (Letter dated 16 March 2017 from 
the GOI to an enterprise to be set up as EOU,  (Exhibit IND-21)). These copies contain the same clause as 
foreseen in the template letter. Neither the template, nor the actual letters indicate that "any other items" 
under Section  6.04(f) may not pertain to goods other than "imported inputs that are consumed in the 
produ ction of the exported product" . WT/DS541/R  
 
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  United  States, this provides further evidence that the schemes exempt from customs duties goods 
other than inputs consumed in th e production of an exported product, and that therefore they do 
not meet the conditions of footnote 1 read together with Annex  I(i).348 
7.220.   We recall h owever  that the United States only challenges the exemptions under 
Section  6.01(d), and not the exemption set f orth in  Section 6.01(f).349 We therefore do not 
consider this argument to be relevant to our analysis of the challenged exemptions.  
7.6.2.2   Whether the customs dut y exemption meets the conditions of  footnote 1 read 
together with Annex  I(g) 
7.221.   We now examine whether the challenged customs dut y exemption under the 
EOU/EHTP/BTP  Schemes meets the conditions of footnote 1 read together with Annex  I(g).350 
As set out above, we do so by ascertaining whether this measure constitutes  (1) an exemption or 
remission (2)  of indirect taxes (3)  in respect of the production and distribution of exported 
products, (4)  not in excess of those levied in respect of the production and distribution of like 
products when sold for domestic consumption.351 
7.222.   Annex  I(g) applies to exemptions or  remissions of "indirect taxes". Footnote  58, appended 
to Annex  I(g), defines the term "indirect taxes" to "mean sales, excise, turnover, value added, 
franchise, stamp, transfer, inventory and equipment taxes, border taxes and all taxes other than  
direct t axes and import charges ".352 Footnote 58 also defines the term "import charges" as "tariffs, 
duties, and other fiscal charges not elsewhere enumerated in this note that are levied on imports". 
Since customs duties thus fall within the definition of "import c harges ", footnote  58 makes it clear 
that the customs duties from which the EOU/EHTP/BTP  Schemes provide an exemption do not 
constitute "indirect taxes" within the meaning of Annex  I(g). Accordingly,  the customs duty 
exemption provided by the EOU/EHTP/BTP  Schemes does not meet the conditions of footnote 1 
read together with Annex  I(g). 
7.6.2.3   Whether the central excise dut y exemption meets the conditions of  footnote 1 
read together with Annex  I(h) 
7.223.   We now examine whether the exemption from central excise duties unde r the 
EOU/EHTP/BTP  Schemes meets the conditions of footnote 1 read together with Annex  I(h). We do 
so by ascertaining whether this measure constitutes  (1) an exemption, remission or deferral (2) of 
prior-stage cumulative indirect taxes (3) on inputs that a re consumed in the production of the 
exported product, (4) levied on those inputs.353 
7.224.   The United  States does not contest that the central excise duty exemption meets the 
first element set out above, i.e. it involves an exemption.354  
7.225.   Turning to the second elem ent set out above, the exemption must pertain to "prior -stage 
cumulative indirect taxes". Excise is expressly included in the definition of "indirect taxes" in 
footnote  58 of the SCM Agreement . Footnote  58 further defines "prior stage" indirect taxes as 
taxes "levied on goods or services used directly or indirectly in making the product ", and 
"cumulative" indirect taxes as " multi-staged taxes levied where there is no mechanism for 
subsequent crediting of the tax if the goods or services subject to tax at on e stage of production 
are used in a succeeding stage of production ". 
7.226.   India explained, and the United  States  did not contest, that  Indian central excise duties are  
an indirect tax  within the meaning of footnote  58 and, absent any subsequent crediting 
 
348 United  States'  second written submission, para.  89; response to Panel question No.  40, 
paras.  59-60; and  comments on India's  response to Panel question No.  43, para.  97. 
349 United States' first written submission, paras. 38  and 40 and fns 57 and 61; second written 
submission, para. 79 and fn 82.  
350 India's  first written submission, paras.  206-209. 
351 See para. 7.186  above.  
352 Emphasis added . 
353 See para. 7.186  above.  
354 United  States'  second written submission, paras.  79-90. WT/DS541/R  
 
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  mechan ism under India's  Central Excise Tax Act, fall within the meaning of prior -stage cumulative 
taxes .355 On this basis, we assume that the second element set out above is met.  
7.227.   We now turn to the third element in our analysis of footnote 1 read together with 
Annex I(h), i.e. whether the central excise duty exemption is granted on " inputs that are 
consumed in the production of the exported product ".  
7.228.   The United  States argues that the exemption from central excise duty is not limited to 
inputs consumed in the production of the exported product, for the same reasons applying, 
mutatis  mutandis , to the exemption from customs duty .356 To recall, the United St ates argued that 
certain goods benefiting from the exemptions are of such a nature that they cannot be inputs 
consumed in the production of an exported product357, that the exemptions are also available to 
acquire goods for creating a central facility358, and that the EOU/EHTP/BTP Schemes do not require 
the duty -exempt goods to be consumed as inputs in the production of the exported product.359  
7.229.   We begin with the nature of the duty -exempt goods. We have found, above, that the 
goods eligible for customs duty exemp tions under the EOU/EHTP/BTP Schemes include goods that 
are not capable of constituting inputs consumed in the production of an exported product within 
the meaning of Annex I.360 We note, however, that the exemption "from duty of excise", at issue 
here, appl ies to the procurement of "excisable goods".361 The 1944 Central Excise Tax defines 
excisable goods as those listed in its Fourth Schedule, and salt.362 The goods listed in the Fourth 
Schedule are tobacco products ranging from unmanufactured tobacco to cigaret tes, tobacco 
substitutes, and mineral products including petroleum oils, oils obtained from bituminous minerals, 
and gaseous hydrocarbons.363 The United States has not established that any of these goods is of 
a nature that makes it incapable of being an inp ut consumed in the production of the exported 
product, either as an input that is "physically incorporated" in the exported product or as "energy, 
fuels and oil used in the production process".364  
7.230.   Next, the United States argues that goods for creating a cen tral facility are not inputs 
consumed in the production of an exported product. While we agree with the United States' factual 
proposition, we note that the exemption the United States is challenging is not the one on goods 
acquired for creating a central facility.365 
7.231.   Finally, the United States argues more generally that the EOU/EHTP/BTP Schemes do not 
limit the central excise duty exemption to inputs consumed in the production of an exported 
product. The Schemes do not set out such a requirement expressly. I n the context of the customs 
duty exemptions, we have rejected the equivalent US argument, noting, in particular, that the 
Schemes require the "imported" goods to be "utilized for export production" and that the fact that 
the Schemes use this wording, rath er than the wording "inputs consumed", does not in itself 
establish that the Schemes do not meet the conditions of footnote 1.366 However, the relevant 
language applicable to the exemption from central excise duties differs from that applying to 
customs duti es. While the FTP requires goods " imported " free of customs duties to "be utilized for 
 
355 India's first written submission, para. 204. 
356 United  States'  second written submission, paras.  87-90. See para. 7.195  and fn 317 above.  
357 See para. 7.195  and sections 7.6.2.1.1  and 7.6.2.1.2 above.  
358 See para. 7.195  and section 7.6.2.1.3  above.  
359 See fn 317 above.  
360 Sections 7.6.2.1.1  and 7.6.2.1.2  above.  
361 Section 6.01(d)(iii) of the FTP. The FTP defines "[e]xcisable goods" to mean "any goods produced or 
manufactured in India and subject to duty of excise under Central Excise and Salt A ct 1944 (1 of 1944)". 
(Definition 9.19 in chapter 9 of the FTP).  
362 Central Excise Act (1944) as amended , (Exhibit USA -88), Section 2(d).  
363 Central Excise Act (1944) as amended , (Exhibit USA -88), Fourth Schedule. T he Central Excise Tariff 
Act (1985) and it s First Schedule, submitted as Exhibits USA -62 and USA -63, have been repealed . 
(India's  communication dated  19 July 2019; see also comments on the United States' response to Panel 
question No. 42.)  
364 Footnote 61 of the SCM  Agreement.  
365 Section 7.6.2.1.3  above.  
366 See fn 317 above.  WT/DS541/R  
 
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  export production"367, the FTP does not set forth such a requirement for goods procured 
domestically without payment of central excise duties.  
7.232.   India argues that the goods  exempted from central excise duty are necessarily inputs 
consumed in the production of exported  products as a result of the requirement for Units to export 
their entire production.368 However, as India itself recognizes, Units are allowed to sell on the 
domestic market, albeit subject to a number of limiting conditions.369 India points out that  
pursuant to Sections 6.08(a)(i) and (v) of the FTP,  to the extent that Units are allowed to sell on 
the domestic market, such sales are "subject to payment of duties as  well as reversal of customs 
duties".370  
7.233.   In that regard, w e note that pursuant to Sections 6.08(a)(i) and (v) of the FTP, domestic 
market sales by EOU/EHTP/BTP Units are subject to "payment of excise duty, if applicable".371 As a 
result of these provisions, if the product being sold domestically is subject to central excise duties 
(e.g. cigarettes), then indeed the effect of the central excise duty exemption on goods acquired to 
produce it (e.g. tobacco) is undone  through the payment of excise duty on the product sold 
domestically  (in our example, through the payment of excise duty on the cigarettes) . However, if 
the product being sold domestically is not subject to central excise duties (e.g.  computers), then  
the domestic sale in question is not itself subject to payment of excise duty  within the meaning of 
Sections 6.08(a)(i) and (v) .  
7.234.   However, during the interim review, India clarified that pursuant to Section 6.08(a)(vi) of 
the FTP, even when the finished good being sold in the DTA is not itself subject to excise duty, that 
sale triggers the obligation on the part of EOU/EHTP/BTP Units to pay the excise duty initially 
foregone on any inputs used to produce the good in question.372  
7.235.   Therefore, the United States has  not established that the exemption from the central 
excise duty is not limited to inputs consumed in the production of an exported product, and that, 
for this reason, it does not meet the conditions of footnote 1 read together with Annex  I(h). 
7.6.2.4   Conclusion  
7.236.   We find that the exemption from customs duties under the EOU/EHTP/BTP  Schemes do es 
not meet the conditions set out in footnote 1 read together with Annexes  I(g), I(h), and I(i).  
We also find that t he United States has not established that the exemption fro m central excise 
duty under the EOU/EHTP/BTP  Schemes do es not meet the conditions of footnote  1 read together 
with Annex  I(h). 
7.6.3   Whether the customs duty exemption under the  Export Promotion Capital Goods 
Scheme  meets the conditions of footnote 1  
7.237.   India argue s that the exemption from customs duties373 on the importation of capital 
goods, under the EPCG Scheme, meets the conditions of footnote 1 read together with 
Annex  I(i).374 In this section, we examine whether this is the case.  
 
367 Section 6.01(d)(i) of the FTP. (emphasis adde d) 
368 E.g. India's first written submission, para. 198, and second written submission, para. 73.  
369 Section 6.08 of the FTP; see also e.g. India's second written submission, para. 75.  
370 India's second written submission, para. 75, referring to Section 6.08(a )(v) of the FTP.  
371 Sections 6.08(a)(i) and (v) of the FTP. This is different from the language used in the same 
provisions for customs duties, i.e. "reversal of duties of Customs".  
372 Section 6.08(a)(vi) of the FTP. See India's opening statement at the inte rim review meeting, 
para. 21; and responses to Panel questions Nos. 95 -101. See also Annex A -2, paras. 5.12 -5.20.  
373 We limit our review to the exemption from customs duties. In its first and second written 
submissions, the United  States did not articulate a challenge with respect to exemptions from IGST and 
compensation cess under the EPCG S cheme ( United  States'  first written submission, paras.  72, 73  and 76-77; 
second written submission, paras.  125 and 131 -132), although India did present arguments on those 
exemptions. (India's  first written submission, paras.  299-303; second written submission, para.  133). Only 
after its second written submission did the United  States refer also to  the exemptions from IGST and 
compensation cess in its argu ments on the merits . (United  States'  opening statement at the meeting of the 
Panel, para. 20; response to Panel question No. 50, paras.  81 and 83-84). 
 WT/DS541/R  
 
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  7.238.   We recall our discussion of the l egal standard under footnote 1 read together with 
Annex  I(i) in section  7.6.1. As summarized in paragraphs 7.186  and 7.191  above, for the 
challenged customs duty exemption not to be "deemed to be a subsidy" by virtu e of footnote 1 
together with Annex  I(i), it must constitute (1)  a remission, drawback, exemption or deferral (2) of 
import charges (3) on imported inputs that are consumed in the production of the exported 
product, (4)  not in excess of those levied on tho se inputs.  
7.239.   The parties do not dispute that the EPCG Scheme provides for an exemption from customs 
duties on importation, thus meeting the first two elements set out above.  
7.240.   Regarding the third element, the United  States contends that the customs duty exempt ion 
does not relate to the importation of inputs that are consumed in the production of the exported 
product.375 The United  States provides two arguments as a basis for this contention. First, the 
duty-exempt goods are capital goods, and therefore incapable of serving as "inputs consumed" in 
the production of the exported product.376 Second, although beneficiaries are subject to an export 
obligation377, they are not required to use the imported goods in connection with the manufacture 
of exported products.378 
7.241.   Regar ding the capital goods issue, India repeats the arguments already considered when 
examining the EOU/EHTP/BTP Schemes.379 India also refers to Members'  work on 
Implementation -Related Issues and Concerns as evidence of a political will to include capital goods  
among inputs consumed in the production process.380 As for the United  States'  second argument, 
India responds that "the requirement to use the imported capital goods only in the production of 
exported products is verified during the application process" .381 
7.242.   The FTP provides that the customs duty exemption at issue applies to the importation of 
"capital goods".382 The FTP provides that, for the purpose of the EPCG Scheme, "capital goods" 
include:  capital goods as defined in Chapter 9 of the FTP383, i.e. the same de finition applying under 
the EOU/EHTP/BTP  Schemes, discussed above; "[c]omputer systems and software which are a 
part of the Capital Goods being imported"384; "[s]pares, moulds, dies, jigs, fixtures, tools & 
refractories"385; and "[c]atalysts for initial charge  plus one subsequent charge".386 
 
For the same reasons set out with reference to the EOU/EHTP/BTP Schemes in fn 304 above , we will not 
consider further the United  States'  arguments concerning the exemptions from IGST and compensation cess.  
(Regarding the expiry of these exemptions under the EPCG Scheme at the end of March 2018, see 
Section  5.01(a) of the FTP).  
374 India's first written submission, paras.  304-308 and 311; second written submission, paras.  132 
and 134-137. India suggested that the exemption from customs duties also meets the conditions of fo otnote 1 
read together with Annex  I(g) (India 's first written submission, para. 300); in that regard, we refer to our 
findings above, at para . 7.222 , that customs duties are not "indirect taxes" and that Annex  I(g) thus does not 
apply.  
375 United  States'  second written submission, paras.  118-123. See also ibid. paras.  65-71 and 76.  
376 United  States'  second written submission, para.  119. 
377 See paras.  7.137 -7.138  above,  and paras. 7.502 -7.504  and 7.506  below.  
378 United  States'  first written submission, paras.  122-123. 
379 India's  first written submission, paras.  306 and 308; second written submission, para.  134. 
380 India's  first written submission, para.  307 (referring to WTO , General Council Decision on 
Implementation -Related Issues and Concerns of 15 December 2000, and the report thereon of the Chairman of 
the Committee on Subsidies and Countervailing Measures of 3 August 2001, WT/L/384 , (Exhibit IND -9); and 
WTO, Committee on Subsidies and Countervailing Measure s, "Chairman 's Report on the 
Implementation -Related Issues referred to the Committee on Subsidies and Countervailing Measures in the 15 
December 2000 Decision of the General Council ", G/SCM/34 ( 3 August 2001),  (Exhibit IND -10)). 
381 India's  second written submission, paras.  135-136 (referring to, among others, Appendices and 
Aayat Niryat forms, (Exhibit USA -6), appendix 5A). We note that, indeed, applicants must provide a certificate 
by a chartered  engineer that "the Capital Good(s) proposed to be imported … is/are required for use … for 
manufacture of the export product(s)". (Appendices and Aayat Niryat forms, (Exhibit USA -6), appendix 5A).  
382 Section 5.01 of the FTP.  
383 Section 5.01(a)(i)  of the FTP . 
384 Section 5.01(a)(ii) of the FTP.  
385 Section 5.01(a)(iii) of the FTP.  
386 Section 5.01(a)(iv) of the FTP.  WT/DS541/R  
 
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  7.243.   We refer to our discussion in paragraphs 7.196 -7.217  above. With the exception of the last 
item in the definition of capital goods for purposes of the EPCG Scheme, i.e. "catalysts"387, the 
goods that can be imported duty -free under the EPCG Scheme, therefore, are not energy, fuels 
and oil, catalysts, or i nputs physically incorporated in the exported product. Instead, they are 
machines, tools, and equipment (as well as components thereof or software therefor ) that may be 
used to produce goods but are not physically incorporated in the goods produced. Theref ore, they 
are not inputs "consumed" in the production of the exported product and, as a result, the 
exemption from customs duties under the EPCG Scheme does not meet the conditions of footnote 
1 read together with Annex  I(i). 
7.244.   India relies on the same rebut tal arguments that we have considered, and dismissed, in 
paragraphs  7.206 -7.207  and 7.210 -7.215  above. The same considerations set out there apply to 
the prese nt scheme, whose scope of application is in part identical388 to that of the 
EOU/EHTP/BTP  Schemes, and in part includes goods of a similar nature, i.e. goods that are not 
physically incorporated in the product for whose manufacture they are used, as well as not being 
energy, fuels and oil, or catalysts.   
7.245.   In addition to repeating those arguments, India relies on Members'  work on 
Implementation -Related Issues and Concerns as evidence of a political will to include capital goods 
among inputs consumed in the prod uction process.389  
7.246.   The Panel notes that Members decided, in 2000, that the Committee on Subsidies and 
Countervailing Measures (SCM Committee) would "examine as an important part of its work the 
issue[] … of the definition of 'inputs consumed in the producti on process', taking into account the 
particular needs of developing -country Members".390 In the report that India itself relies upon, the 
chairperson of the SCM Committee noted the divergent views of Members on the matter, and 
observed that "[s]ome Members h a[d] noted that footnote 61 was specifically negotiated to 
exclude capital goods and therefore could not lend itself to interpretation as including such 
goods" .391 The Panel does not view this as showing that footnote 61 includes capital goods.  
7.247.   We therefore find that the customs duty exemption under the EPCG Scheme does not meet 
the conditions of footnote 1 read together with Annex  I(i), because it provides for the importation 
of goods that are not "inputs consumed" in the production of the exported product.  
7.6.4   Whether the customs duty exemptions under the Duty -Free Imports for Exporters 
Scheme meet the conditions of footnote 1  
7.248.   India argues that the DFIS exemptions from customs duties meet the conditions of 
footnote  1 read together with Annex I(i) and, therefore,  are not subsidies.392 
7.249.   For the DFIS exemptions not to be "deemed to be a subsidy" by virtue of footnote 1 read 
together with Annex  I(i), they must constitute (1)  a remission, drawback, exemption or deferral 
(2) of import charges (3)  on imported inputs that a re consumed in the production of the exported 
product, (4)  not in excess of those levied on those inputs.393 
 
387 Footnote 61 of the SCM  Agreement includes in the definition of "inputs consumed in the production 
process" "catalysts which are consumed in the course of their use to obtain the exported product". Neither 
party has addressed the question whether the catal ysts that can be imported duty -free under the 
EPCG  Scheme meet the definition of catalysts in footnote 61 and, in any event, we  do not understand the 
United  States'  challeng e to extend to catalysts. (See e.g. United  States'  second written submission, paras . 84, 
116, and 119 ("capital equipment")). Therefore, w e do not include catalysts in the scope of our finding , below,  
that the duty exemption at issue does not pertain to inputs "consumed" in the production of the exported 
product because of the nature of the goods in question.  
388 For capital goods as defined in Section 9.08  of the FTP. See also  Section 5.01(a)(i)  of the FTP . 
389 See p ara. 7.241  above.  
390 General Council decision WT/L/384,  (Exhibit IND -9), para.  6.3 (referred to  in India's  first written 
submission, fn 254).  
391 SCM Committee decision G/SCM/34,  (Exhibit IND -10), p. 2. See also ibid. paras.  14 and 11 -31, and 
India's  first written submission, para.  307 and fn 255.  
392 India's first written submission, paras. 388 -394; second written submission, paras. 199 -202. 
393 See para. 7.186  above.  WT/DS541/R  
 
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  7.250.   We begin with the first two elements set out above, namely, the existence of an 
(1) exemption or remission (2) from import charges. As set out in sec tion 7.5.4 above, DFIS caps 
at zero the customs duties on importation of certain specified goods, provided the requirements in 
the applicable Condition are met. More  precisely, through DFIS, "the Central Government … 
exempts [the specified goods] … from so much of the duty of customs leviable thereon under the 
[First  Schedule of the 1975 Customs Tariff Act] as in excess of [zero]".394 Further, as clarified by 
footnote  58 of the SCM Agreement , "duties … levied on imports" are "import charges" for purposes 
of Annex I(i). Therefore, DFIS meets the first two conditions in footnote 1 read together with 
Annex  I(i), i.e. it constitutes an exemption from import charges.  
7.251.   Regardin g the third element in the analysis under footnote 1 read together with Annex I(i), 
the United States argues, first, that the DFIS exemptions cover the importation of certain goods 
that, by their nature, cannot be consumed in the production process.395 In this regard, the parties 
rely on the arguments already considered when discussing the EOU/EHTP/BTP and 
EPCG  Schemes.396 
7.252.   Second, the United States argues that DFIS does not require the use of the imported 
goods as inputs in the production of exported products.397 According to India, however, the criteria 
in the measure, enforced by the competent bodies, ensure the duty exemption is limited to inputs 
consumed in the production process.398  
7.6.4.1   The nature of certain goods covered by the exemptions  
7.253.   The United States asserts that all the goods that can be imported duty free under 
Conditions  60(ii) (line item 430)399 and 61 (line item 431)400 are capital goods consisting of 
equipment, machinery and tools. The United States argues that, even assuming these goods are 
used in the production of the exported product, they are not physically incorporated into it.401 
India agrees that, as a matter of fact, all the goods falling under Conditions 60(ii) and 61 "may be 
qualified as capital goods".402 However, India considers that, as a ma tter of law, capital goods 
used in the production of an exported product are "inputs … consumed" in the production of the 
exported product within the meaning of Annex I(i).403 
7.254.   The parties rely on their arguments concerning the issue of capital goods which we  have 
already considered when examining the EOU/EHTP/BTP and EPCG Schemes.404 As we have 
 
394 Notification No. 50/2017, (Exhibit USA -36), p. 1 ("from so much… as is in excess of … the standard 
rate specified in the corresponding entry in column (4)", which, for the duty stipulations comprising DFIS, is 
"nil" (nothing), i.e. zero).  
395 United States' second written submission, para. 167; opening statement at the meeting of the Panel, 
para. 57; response to Panel question No. 80, para. 133 and  appendix 2; and response to Panel question 
No. 81, para.  135. 
396 For the United States, see previous footnote. For India, see second written submission, 
paras . 201-202; comments to the United States' response to Panel question No. 79.  
397 United States' second written submission, para. 166; opening statement at the meeti ng of the Panel, 
paras.  36-39, and 57; responses to Panel questions Nos. 79, 81 and 82; and comments on India's responses to 
Panel question No. 82.  
398 E.g. India's first written submission, para. 390; second written submission, paras. 191 -194. 
399 These are t he goods in Lists 21 and 22 of Notification No. 50/2017,  (Exhibit USA -36), i.e. 125 items 
for use in the manufacture of commodities in the pharmaceutical and biotechnology sector, such as, for 
example, cell cultivation devices, low temperature freezers, sp ectrophotometers, centrifuges, x -ray diffraction 
equipment, automated sampling devices, and gas generators.   
We recall that the United States only challenges the duty -free treatment provided under 
Condition  60(ii), and not under Condition 60(i). (See fn 266 above).  
400 These are the goods in List 23 of Notification No. 50/2017, (Exhibit USA -36), i.e. 119 items for 
research and development purposes in the agro -chemical sector, such as, for example, analytical balances, 
anemometers, centrifuges, dry ice makers, health monitoring equipment, and incubators.  
401 United States' response to Panel question No. 80, para. 132 and Appendix 2.  
402 India's response to Panel question No.  80. In the same response, India argues that the relevant duty 
exemption is not export contingent, a point we consider in para. 7.541  below.  
403 United States' second written submission, para. 167; India's first written submission, paras. 388 and 
390; and response to Panel question No. 80, first para.  
404 United States' opening statement at the meeting of the Panel, para.  57; comments on 
India's  response to Panel question No. 80, para. 157; India's second written submission, para. 201; response 
to Panel question No. 80, third para.; and comments on the United States' response to Panel question No. 80.  WT/DS541/R  
 
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  explained in that context, equipment, machinery and tools that are used in the production of a 
product but are not "physically incorporated", i.e. physically present, ev en in a different form, in 
the final product405, are not "inputs … consumed" within the meaning of Annex I(i).406 Therefore, 
the duty exemptions available under Conditions 60(ii) and 61 do not meet the conditions of 
footnote 1. Specifically, they do not meet t he third element in our analysis, namely, that the duty -
exempt goods must be "inputs  … consumed" in the production of the exported product.  
7.255.   The United States also argues that six of the 27 items (or groups of items) that can be 
imported duty -free under Con dition 21 (line item 229) constitute tools that are not "inputs … 
consumed" within the meaning of Annex I(i).407 India, too, factually describes five of these six 
items as "capital goods", but repeats that capital goods are inputs consumed in the production of 
the exported product.408 As already explained, "inputs … consumed" within the meaning of 
Annex  I(i) are inputs "physically incorporated", "energy, fuels and oil", or "catalysts". The tools in 
question fall in none of these categories. Therefore, to the extent that it exempts from  customs 
duties the importation of these six items, the duty exemption under Condition 21 does not meet 
the conditions of footnote 1.  
7.256.   Further, the United States argues that one of the 36 items that can be imported duty -free 
under Condition 10 (line item 10 4)409, namely, food tenderizers for use in processing seafood 
products for export, may also not qualify as an input consumed in the production of the seafood 
products in question.410 The evidence submitted by the United States indicates that at least one 
type of tenderizer involves a tool for mechanical tenderization, which would therefore not be 
physically incorporated into the processed seafood product, and is also not "energy, fuels and oil", 
or a "catalyst[]".411 Therefore, to the extent that it exempts from customs duties the importation 
of such tenderizers, the duty exemption under Condition 10 does not meet the conditions of 
footnote  1. 
7.6.4.2   Whether the imported goods must be used as inputs consumed in the 
production of an exported product  
7.257.   The United States argu es that DFIS does not require that the imported goods be used as 
inputs in the production of exported products.412 In response to questioning from the Panel, the 
United States "recognize[d] that [unlike Conditions 60 and 61, already disposed of above,413] othe r 
conditions contain language regarding the processing/manufacturing of the imported good in the 
exported product" .414 Indeed, six of the challenged Conditions, namely, Conditions 10, 21, 28, 32, 
33, and 101, expressly require the duty -exempt goods to be imp orted for use in the manufacture 
of specified final products for export.415  
 
405 And are not "energy, fuels and oil", or "catalys ts". Footnote 61 of the SCM Agreement . 
406 See p aras. 7.199 -7.216  above.  
407 United States' response to Panel question No. 80, Appendix 2. These are: air and electric operated 
screw driver with hose and couplings; tool bits, for motorizer and screw driver; glue applicator; moisture 
measuring tool; air o perated guns and tools for inserting fasteners for brands, flexi points, pins, staples, nails 
and hinges; and power operated mitre saw.  
408 India's response to Panel question No. 80. The item left out of India's listing of capital goods, as 
compared to the U nited States', is "tool bits, for motorizer and screw driver". In the view of the Panel, on the 
face of the evidence, these "tools bits", when used for the manufacture of handicrafts (as required by 
Condition  21), are also not "physically incorporated" int o the production of the exported product (i.e. the 
handicraft).  
409 These goods are in List 1 of Notification No. 50/2017, (Exhibit USA -36). 
410 United States' response to Panel question No. 80. India has been silent with regard specifically to this 
item. 
411 A "food tenderizer" does not always involve a tool or device for mechanical tenderization, as there 
may also be other ways of tenderizing food, such thermal or enzymatic tenderization . See 
https://www.foodsharkmarfa.com/best -meat-tenderizers/  (accessed 8 May 2019) referred to in the 
United  States' response to Panel question No. 80, Appendix 2, p. 59, fn 208 (Exhibit USA -90). 
412 United States' second written submission, para. 166; opening sta tement at the meeting of the Panel, 
para. 57. 
413 See para. 7.254  above.  
414 United States' response to Panel question No. 79, para. 126.  
415 Notification No. 50/2017, (Exhibit USA -36), Conditions 10(a), 21(a), 28(a), 32(a), 33(a), 
and 101(a).  WT/DS541/R  
 
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  7.258.   The United States argues that, despite the requirement in certain Conditions that the 
exemption should only apply in respect of inputs used in the manufacture of final products for 
export, the exemption or remission416 of import charges is "disconnected" from the charges 
actually levied on imported inputs consumed in the production of the exported product.417 
According to the United States, this is because "the amount of duty exemption …  is uniform across 
broad categories of exports based on the FOB value of exports"418, which shows that the 
exemption is rather a "reward contingent upon the exporter's export performance".419 
7.259.   India counters that the challenged duty stipulations exempt inputs f rom customs duties, 
and that therefore "the value of this exemption is necessarily not in excess of those [duties] levied 
on the inputs" .420 As for the pegging of the duty exemption to the value of exports during the 
previous year421, India asserts that this, too, serves to ensure that the duty exemptions afforded 
under DFIS do not exceed the value of the duty liability on inputs consumed in the production of 
the exported product.422 India also argues that the existence of this ceiling on duty exemptions, 
which i s based on the value of past exports, does not otherwise affect the operation of DFIS.423 
And, finally, India notes that the United States' argument that DFIS rewards export performance is 
misplaced, because the question under Article 1 and footnote 1 of the  SCM Agreement  is whether 
there is a subsidy, and not (yet) whether the subsidy is export contingent.424  
7.260.   We begin with Conditions 10, 21, 28, 32, 33, and 101.425 One element of each of these 
Conditions requires that the duty -exempt goods themselves be used in  the production of the 
exported product, as summarized in the table below.  
Table 3: Link to production of exported products in Conditions 10, 21, 28, 32, 33, 
and 101 
Condition  Link to production of exported product426 
10 "If,- (a) the goods are imported by an exporter of sea -food products for use in processing 
sea-food products for export …"  
21 "If,- (a) the goods are imported, - 
… for use in the manufacture of handicrafts for export …"  
28 "If, (a) the goods are imported,  
… for use in the manufacture of textile garments or leather garments for export …"  
32 "If (a) The goods are imported … for use in manufacture of [leather footwear or synthetic 
footwear or other leather products] for export …"  
33 "If,- (a) the goods are imported … for use in the manufacture of [handloom made ups or cotton 
made -ups or man-made made ups] for export …"  
101 "If,- (a) the goods are imported … for use in the manufacture of sports goods for export …"  
 
416 The United States refers to the duty stipulations comprising DFIS in several different ways, namely 
as remissions, drawbacks and exemptions. We conside r them to be an exemption: see paras. 7.169  and 7.250  
above, and fn 429 below.  
417 E.g. United States' responses to Panel questions Nos. 79 and 82, paras. 127 -129 and 141.  
418 United States' response to Panel question No. 79, para. 129.  
419 United States' response to Panel question No. 79, para. 129. See also United States' second written 
submission, para. 163; opening statement at the meeting of the Panel, para. 57.  
420 India's comments on the United States' response to Panel question No. 82.  
421 See paras. 7.157 -7.159  above.  
422 India's first written submission, para. 390; se cond written submission, paras. 191 -198. 
423 India's response to Panel question No. 82.  
424 India's second written submission, para. 197.  
425 To recall, Conditions 10, 21, 28, 32, 33, and 101 expressly require that the use of the duty -exempt 
goods be limited to the manufacture of the specified exported products; Condition 36, which we discuss 
separately below, does not. As for Conditions 60(ii) and 61, we have exhaustively addressed these in 
para. 7.254  above.  
426 Notification No. 50/2017, ( Exhibit USA -36) and Excerpts from  Notification No.  50/2017 , 
(Exhibit  USA-38). WT/DS541/R  
 
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  7.261.   On the face of the measure, each iteration of this first element appears to correspond to 
the condition, in footnote 1 read together with Annex I(i), that a duty exemption be limited to 
duties on inputs consumed in the production of the exported product.427 
7.262.   A second element of each of these Conditions, which we refer to as the "backward -looking 
element", requires that the va lue of the duty -exempt imported goods not exceed a certain 
percentage, ranging from 1% to 5%, of the FOB value of exports of those same final products 
during the preceding financial year.428 
7.263.   These two elements are cumulative, i.e. they both limit the amount of the exemption from 
customs duties that is available to an importer. On the face of the measure, if the 
backward -looking element entitles a recipient to import duty -free inputs that are worth 5, but the 
recipient imports inputs that are worth 1, the theo retical entitlement to import 5 is of no avail 
(i.e. it does not expand the scope of the duty -free entitlement): only 1 will be duty -exempt.429  
7.264.   The United States' arguments, to the effect that the duty exemption is "disconnected" from 
the duties actually le vied on imported inputs, look exclusively at the backward -looking element. 
Those arguments ignore the first element discussed above, i.e. the requirement that the imported 
goods be used in the manufacture of the specified products for export.430  
7.265.   In light of  this requirement, the United States has not shown to this Panel that the six duty 
stipulations at issue do not meet the conditions of footnote 1. The Panel will therefore not examine 
these six duty stipulations under Article 3 of the SCM Agreement .431 
7.266.   Last, we turn to Condition 36, which provides for the duty -free importation of carpet 
samples by exporters of carpets. There is nothing limiting this duty exemption to inputs consumed 
in the production of the exported product, and indeed carpet samples are neit her inputs physically 
incorporated in the exported product, nor energy, fuels, oil, or catalysts. Therefore, Condition 36 is 
not excluded from the definition of a subsidy by virtue of footnote 1.   
7.6.4.3   Conclusion  
7.267.   Based on the arguments and evidence before us, we find that Conditions 60(ii), 61, and 
36, in their entirety, and Conditions 10 and 21, for one and six items respectively432, do not accord 
with footnote 1. For all other items under Conditions 10 and 21, and for Conditions 28, 32, 33, and 
101, the United States has not demonstrated that the challenged duty stipulations fail to meet the 
conditions of footnote 1 . 
 
427 As set out in the table, these six conditions in Notification No. 50/2017 require "use" in the 
manufacture or processing. As seen in paras. 7.255 -7.256  above, for six items under Condition 21, and one 
item under Condition 10, "use" is not consumption, as is instead necessary under footnote 1 read together with 
Annex I(i). For th e remaining items under Conditions 10 and 21, and for all items under the other Conditions 
listed in this table, however, our review of the listed items leads us to conclude that the only way in which they 
can be "used" in the manufacture or processing of the products concerned is by being consumed, within the 
meaning of Annex I(i). By way of example, this is the case of "breadcrumbs" used in processing of seafood 
(under Condition 10), and table tennis rubber for use in the manufacture of sports goods (unde r 
Condition  101). The United States has not argued otherwise.  
428 Notification No. 50/2017, ( Exhibit USA -36); Excerpts from Notification No.  50/2017 , 
(Exhibit  USA-38). 
429 As India points out, the scheme provides for a duty exemption. And as we have seen earli er, a duty 
exemption operates ex ante , i.e. it entails that the duty liability never arises. Therefore, as India puts it, "the 
value of this exemption is necessarily not in excess of those [duties] levied on the inputs". (India's comments 
on the United Sta tes' response to Panel question No. 82; and para. 7.169  above).  
430 This despite the fact that in response  to a question from the Panel, the United States concedes  that 
all Conditions (except for Conditions 60 and 61 , which  are not at issue here) "contain language regarding the 
processing/manufacturing of the imported good in the exported product"  (United States' response to Panel 
question No. 79, para. 126 ). 
431 Except for one item under Condition 10 and six items under Condition 21. See paras . 7.255 -7.256  
and fn 426 above.  
432 See fns 407 and 408, and para. 7.256  above.  WT/DS541/R  
 
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  7.6.5   Whether the Merchandise Exports from India Scheme meets the conditions of 
footnote 1  
7.268.   India contends that MEIS scrips are refunds for past payments of indirect taxes, consistent 
with the conditions of footnote  1 read together with Annexes I(g) and I(h)433; or, alternatively, 
that their use results in the remission of import charges, consistent with footnote 1 read together 
with Annex  I(i).434  
7.6.5.1   Whether MEI S scrips meet the conditions of footnote 1 read together with 
Annexes  I(g) and I(h)  
7.269.   We begin by assessing whether MEIS scrips meet the conditions of footnote 1 read 
together with Annexes I(g) and I(h).  
7.270.   We recall our discussion of the legal standard under footnote 1 and the relevant Annexes 
in section 7.6.1 above. In accordance with that discussion, whether MEIS scrip s are not "deemed 
to be a subsidy" by virtue of footnote 1 read together with Annex es I(g) and I(h),  respectively, 
depends on whether MEIS scrips meet the following four cumulative elements:  
Under Annex I(g) – 
(1) They constitute an exemption or remission, including a refund or rebate;  
(2) of indirect taxes;  
(3) in respect of the production and distribution of exported products;  
(4) not in excess of those levied in respect of the production and distribution of like 
products when sold for domestic consumption.  
Under Annex I(h) – 
(1) They constitute an exemption, remission, or deferral, including a refund or rebate;  
(2) of prior -stage cumulative indirect taxes;  
(3) on inputs that are consumed in the production of the exported product;  
(4) not in exce ss of those levied on those inputs.  
7.271.   As we will see below, the parties disagree that even the first of these four elements is met.  
7.272.   Pursuant to the FTP Chapter on MEIS, India grants "Duty Credit Scrips" as a reward for 
exports.435 The value of scrips that a r ecipient is entitled to is determined by multiplying the 
FOB value of exports of "notified" goods to "notified" markets by the "rates of reward" assigned to 
those goods and markets.436 The recipient of the scrips can then use them to offset certain 
 
433 India's first written submission, paras. 231 -236 and 263 -278; second written submission, 
paras.  96-98 and 104 -113; opening statement at the meeting of the Panel, paras. 65 -73; responses to Panel 
questions No.  57, No. 60, and No. 62; and comments on the United States' response to Panel question No. 55.  
434 India's se cond written submission, paras. 114 -118; opening statement at the meeting of the Panel, 
para. 76. 
435 Sections 3.02 and 3.04  of the FTP.  
436 Section 3.04  of the FTP. "[N]otified" goods and markets are set out in Appendix 3B. Appendix 3B 
groups export destinati on countries into three "country groups". Appendix  3B then lists, over 332 pages, the 
"MEIS -Reward Rate" for each covered product; specifically, for each covered product, it lists three rates, the 
choice between the three being determined by the country to  which the exports giving rise to the reward were 
made. ( Public Notice 2/2015 2020 , (Exhibit USA -11), Appendix  3B, tables 1 and 2).  WT/DS541/R  
 
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  liabiliti es vis-à-vis the government, including customs and excise duties437; in addition, the scrips 
are "freely transferable".438 
7.273.   Although the value of the scrips is a fixed percentage of exports, India argues that the 
scrips in fact are a mechanism chosen by India t o refund two categories of indirect taxes, namely: 
indirect taxes in respect of the production and distribution of the exported products, in accordance 
with footnote 1 and Annex I(g); and prior -stage cumulative indirect taxes on inputs consumed in 
the prod uction of the exported products, in accordance with footnote 1 and Annex I(h).439  
7.274.   India explains that the value of these taxes necessarily represents a percentage of the 
value of the exports in question: in India's words, these taxes are thus "embedded" in the value of 
the exports.440  
7.275.   The Panel asked India to explain how it determined the different reward rates, and to 
provide the evidence supporting its answer.441 India responded that it sets the rates at a level that 
"approximate[s] but [is] less than" the ta xes to be refunded.442 According to India, relying on a 
uniform but low rate allows it to avoid the "administratively cumbersome" task of "calculat[ing] the 
precise refund for every product and every export" .443 
7.276.   As an "example", India provided a table that, ac cording to India, contains "actual 
information" for exporter "ABC" on "the total cost of embedded indirect taxes on electricity, freight 
and fuel" per metric ton of its exports under Harmonised System code 73259100 during financial 
year 2016 -2017.444 The tab le states the alleged cost incurred by exporter "ABC" for specified taxes 
on electricity, fuel and freight, and concludes by stating that these taxes amounted to 6.10% of 
the FOB value of the corresponding exports.445 India then points out that the value of scrips that 
ABC would have been eligible for under the applicable MEIS reward rates would have been 3% of 
the value of exports, i.e. less than 6.10%.446  
7.277.   According to the United States, the record evidence belies the argument that scrips are a 
refund of indi rect taxes already paid, and this argument is "a fiction".447 The United States argues 
that there is no connection between taxes actually paid and the value of scrips448; that the FTP 
expressly describes scrips as a reward for exports, and bases the rate of re ward on the product 
exported and the country it was exported to;449 that India does not even ask scrip recipients for 
information that would allow it to determine the amount of indirect taxes paid on exported 
products;450 that the taxes to be refunded under fo otnote 1 and Annex I(g) and (h) are actual 
taxes, not averages or estimates (and that in any event under MEIS India does not even estimate 
taxes already paid)451; and that "one happenstance example" in which the applicable MEIS reward 
 
437 Section s 3.02 and 3.18 of the FTP . For a fuller description, see para. 7.161  above.  
438 Section 3.02  of the FTP.  
439 India's first written submission, paras. 231, 232, 268, 273, and 275; second written submission, 
para. 105; and opening statement at the meeting of the Pane l, para. 73. According to India, the taxes so 
refunded include taxes on electricity and fuel, stamp duty, entry tax, road tax, and others. (India's first written 
submission, paras. 231, 232, 268, and 269; second written submission, paras.  105 and 106; and response to 
Panel question No. 57).  
440 India's  first written submission, paras.  232, 235, and 277; second written submission, 
paras.  105-106 and 109; opening statement at the meeting of the Panel, paras. 65 -66; and response to Panel 
question No. 60.  
441 Panel  question No. 60 after the substantive meeting with the parties. The Panel also asked this 
question orally during the substantive meeting.  
442 India's response to Panel question No. 60, first para . 
443 India's response to Panel question No. 60, fifth para. See  also e.g. India's  first written submission, 
paras.  232 and 279.  
444 India's response to Panel question No. 60, third para.  
445 India's response to Panel question No. 60, table.  
446 India's response to Panel question No. 60, fourth and fifth paras.  
447 E.g. United States' second written submission, paras. 108 -109; comments on India's response to 
Panel questions Nos. 56 and 60, paras. 122 and 133 -134. 
448 E.g. United States' second writte n submission, para. 109;  comments on India's response to Panel 
questions Nos. 56 and 60, paras. 122 and 133 -134. 
449 E.g. United States' comments on India's response to Panel question No. 60, para. 133.  
450 E.g. United States' opening statement at the meeting of the Panel, paras. 51 -53. See also 
United  States' comment on India's response to Panel question No. 60, para. 133.  
451 E.g. United States' response to Panel question No. 37, paras. 50 -53. WT/DS541/R  
 
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  rate is lower than the ratio between indirect taxes paid and value of exports does not show that 
MEIS scrips are actually a tax refund.452  
7.278.   Therefore, regardless of whether the type of taxes referred to by India are relevant 
indirect taxes, the parties disagree on whether, in awar ding MEIS scrips, India is at all providing a 
"remission"453 of such taxes. According to India, the award of scrips is a remission of indirect taxes  
on products exported in the past; but according to the United States, it is merely a reward  for past 
exports,  and India is "refram[ing] these rewards post hoc  as reimbursed indirect taxes" .454  
7.279.   To recall, the scrips in question are "rewards under MEIS"455, and Section 3.04 of the FTP 
describes the trigger for, and the basis for calculating, such rewards. Pursuant to Section 3.04, the 
basis for calculating the reward is the FOB value of exports of "notified" goods to notified markets, 
which must then be multiplied by the applicable rate of reward set out in Appendix 3B.  
7.280.   Appendix 3B sets forth the notified markets, div iding them into three groups; it then sets 
out the notified goods, indicating, for each notified good, the MEIS reward rate applying to exports 
of the good in question to each of the three country groups.456 Depending on the product and 
destination country, the reward rates range from 0% to 5%. We thus learn, for example, that for 
exports of butter, the MEIS reward rate is 2% if the butter is exported to country group B, and 
0% if the butter is exported to country groups A and C; on the other hand, the rate o f reward for 
desiccated coconut is 5% for export to any of the three country groups.457  
7.281.   India has not pointed to anything in the FTP, in Appendix 3B, or in any other evidence on 
the record, indicating that indirect taxes paid in connection with the exported  product were the 
basis for the award of MEIS scrips, nor has the Panel found any such indication in its review of the 
evidence.458 Instead, the legal instruments providing for MEIS very plainly establish that the value 
of scrips is determined by multiplying  past exports by the percentage set forth in Appendix 3B for 
the particular product -country combination.  
7.282.   Nor is there any record evidence that the rates set out in Appendix 3B were in fact 
determined on the basis of indirect taxes actually paid. To the co ntrary, the Panel notes that the 
scheme envisages different rates for the same product, depending on the country to which the 
product was exported.459 It would be difficult to see why MEIS differentiates among destination 
markets if it served as the basis fo r refunding previously accrued indirect taxes.  
7.283.   In a similar vein, the Panel notes that in its Highlights of the Foreign Trade Policy 
2015-2020, Mid Term Review,  India explained that it increased the rate of reward for ready -made 
garments and made -ups from 2% to 4%, and that it granted an "[a]cross the board increase of 
2% in existing MEIS incentive for export by MSMEs / labour intensive industries".460 Nothing in 
that document or elsewhere links the increase in the MEIS rates to the level of indirect taxes paid 
on the exported products and, in the absence of any such link, it is again difficult to reconcile this 
decision to increase reward rates with th e characterization of MEIS scrips as remitting or refunding 
indirect taxes.  
 
452 United States' comments on India's response to Panel question No. 60, para. 139.  
453 We refer to our discussion on the notions of "exemption" and "remission" in para. 7.169  above. Here 
India argues that the taxes are first paid, and the n refunded or rebated in the form of MEIS scrips; therefore, 
the question is whether there is a remission (which, according to footnote 58, includes a "refund or rebate"), 
not whether there is an exemption.  
454 United States' second written submission, para. 109.  
455 Section 3.02 of the FTP.  
456 Public Notice 2/2015 2020 , (Exhibit USA-11), Appendix 3B, tables 1 and 2.  
457 Public Notice 2/2015 2020 , (Exhibit USA-11), Appendix 3B, table 2, HS codes 040510 and 08011100 . 
458 As the United States points out, India does not even seek information on indirect taxes paid, as part 
of the application process for MEIS scrips. (United States' opening statement at the meeting of the Panel, 
para. 52). See also Appendices and Aayat Niry at forms, (Exhibit USA -6), appendix ANF -3A ("Application Form 
for Merchandise Exports from India Scheme (MEIS)").  
459 Appendix 3B, table 2, contains, for the "MEIS reward rate" for each notified product, three columns, 
one for the rate applicable to each of  the three country groups. For a number of goods, the rates do indeed 
differ by country of export. ( Public Notice 2/2015 2020 , (Exhibit USA-11), Appendix 3B, table 2.)  
460 Excerpt from Highlights of the Foreign Trade Policy Review, 2015 -2020, mid -term review  
(December  2017) , (Exhibit USA -20), also in Highlights of the Foreign Trade Policy Review, 2015 -2020, 
mid-term review (December 2017), ( Exhibit USA -85), p. 4. WT/DS541/R  
 
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  7.284.   As noted earlier, the Panel asked India to explain, with supporting evidence, how it 
determined "the different reward rates". In response, India provided a table that it described as 
setting forth the indirect tax expenses of exporter "ABC", during financial year 2016 -2017, on a 
particular exported product.461  
7.285.   The Panel notes that although it explicitly requested, in its question, "evidence supporting 
[India's] answer", Ind ia entirely failed to provide any evidence supporting (a) the allegations of 
fact in the table or even (b) the relevance of exporter ABC's alleged costs to MEIS. In any event, 
even accepting the information on ABC provided by India, this information merely  establishes that, 
for ABC, in financial year 2016 -2017 and for the product in question, the level of indirect taxes at 
issue was higher  than the level of the MEIS reward rate. It does not establish that MEIS serves to 
remit those taxes.  
7.286.   The characterizat ion of MEIS in the underlying domestic legal instrument s, while alone not 
dispositive, further confirms the conclusion that MEIS does not remit indirect taxes. For example, 
the FTP provides that "[d]uty credit scrips shall be granted as rewards under MEIS"462, and that 
"[e]xports of notified goods/products … to notified markets … shall be rewarded under MEIS".463 
The HBP speaks of an "application for claiming rewards under MEIS on exports".464 And 
Appendix  3B refers throughout to "reward rates". Nowhere does any of these legal instruments 
refer to any notion of MEIS remitting indirect taxes.  
7.287.   India refers to Section 3.00 of the FTP, according to which the objective of the two 
schemes in Chapter 3 of the FTP, which include MEIS, is "to offset infrastructural ineffic iencies and 
associated costs". India argues that these inefficiencies and costs include the indirect taxes that, 
according to India, MEIS refunds.465 However, first, we note that the complete text of the 
description of the MEIS objective in the FTP reads as follows:  
Exports from India Schemes  
3.00 Objective  
The objective of schemes under this chapter is to provide rewards to exporters  to 
offset infrastructural inefficiencies  and associated costs.  
… 
Merchandise Exports from India Scheme (MEIS)  
3.03 Objective  
Objective of … MEIS is to promote the manufacture and export of notified 
goods/products . 
7.288.   Thus, even when we consider, as directed by India, the stated objectives of the scheme, 
we see that the emphasis is on "rewarding", or "promoting", exports, and nothing  is said about 
refunding taxes already paid. Moreover, the language excerpted by India refers to offsetting 
"infrastructural inefficiencies", which are not the same as "indirect taxes". We are therefore unable 
to agree with India that the reference to "off set[ting] infrastructural inefficiencies" in Section 3.00 
of the FTP should lead us to conclude that, despite the text, structure and design of MEIS, this 
scheme's  underlying objective is in fact to refund indirect taxes connected to the exported 
products.  
7.289.   Based on the foregoing, we find that MEIS does not "remit" or "refund" indirect taxes and 
therefore does not meet the first of the conditions set out in footnote  1 read together with 
Annex  I(g) or I(h). 
 
461 India's response to Panel question No. 60.  
462 Section 3.02 of the FTP.  
463 Section 3.04 of the FTP . 
464 Section 3.01(b) of the HBP.  
465 India's  first written submission, para.  231. WT/DS541/R  
 
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  7.6.5.2   Whether MEIS scrips meet the conditions of footnote 1 read together with 
Annex  I(i) 
7.290.   We now turn to India's arguments in respect of footnote 1 and Annex I(i). As an 
alternative to its arguments under footnote 1 and Annexes I(g) and I(h), India argues that when 
MEIS scrips are used to pay for customs duties o n importation, or to regularize a default in an 
export obligation, this "results in" a remission of import charges that meets the conditions of 
footnote 1 read together with Annex  I(i).466  
7.291.   To ascertain whether a measure must "not be deemed to be a subsidy" by virtue of 
footnote  1 read together with Annex  I(i), we examine whether it constitutes (1)  a remission or 
drawback, including full or partial exemption or deferral, (2)  of import charges (3)  on imported 
inputs that are consumed in the production of the e xported product, (4)  not in excess of those 
levied on those inputs.467 
7.292.   Even assuming that MEIS scrips, when used to pay for customs duties468, do operate as 
remitting import charges, MEIS scrips fail the third of the four elements set out above, namely, 
that t he import charges must be on imported inputs consumed in the production of exported 
products.  
7.293.   MEIS in no way limits the import charges that may be paid for with scrips to import 
charges on inputs consumed in the production of the exported product. Instead , the FTP provides 
expressly that scrips may be used to pay for import charges on the "import of inputs or goods , 
including capital goods".469 Therefore, MEIS does not meet, at least, the third condition of 
footnote  1 read together with Annex I(i). Indeed, I ndia elsewhere acknowledges that "the use of 
the MEIS scrips … does not require the import of inputs to be consumed in the production of an 
exported product" .470 
7.6.5.3   Conclusion  
7.294.   Therefore, we find that MEIS scrips do not meet the conditions set out in footnote 1 read 
together with Annexes I(g), I(h), and I(i).  
7.7  Revenue foregone under Article 1.1(a)(1)(ii)  
7.295.   This section addresses the United  States'  argument that, under four of the challenged 
schemes, India provides a financial contribution by foregoing government rev enue that is 
otherwise due, within the meaning of Article  1.1(a)(1)(ii) of the SCM Agreement . More specifically, 
in respect of the EOU/EHTP/BTP  Schemes, the EPCG Scheme, the SEZ Scheme, and DFIS471, the 
 
466 India's second written submission, paras. 114 -119. 
467 See paras. 7.186  and 7.191  above.  
468 Sections 3.02(i), 3.02(iv) and 3.18(a) of the FTP expressly provide that MEIS scrip s can be used to 
pay for customs duties. In addition, also regarding payments for shortfalls in export obligations pursuant to 
Section 3.18(b) of the FTP , India appears to argue that paying for such shortfalls ultimately results in paying 
customs duties on goods imported under the schemes at issue and therefore "results in a remission of these 
import charges" . (India's second written submission, para. 117) See also India's response to Panel question 
No. 61. A shortfall in an export obligation is t he differe nce between a participa nt's actual export performance 
for a year and its applicable export obligation.  
469 Section 3.02(i) of the FTP. (emphasis and underlining added)  
470 India's response to Panel question No. 59: "[t]he refund (by way of scrips) can be used for the 
specified uses listed in Paragraph 3.02 of the FTP. The use of the MEIS scrips (refund of taxes already paid on 
exported products) does not require the import of inputs to be consumed in the production of an exported 
product."  Moreover , "[s]ince th e scrip is only received upon the export of the product (post facto), the scrip 
can only [be] used for payment of duties on subsequently imported/procured inputs, and the award of the scrip 
can never be tied to the subsequently imported/procured inputs".  (India's  second written submission, 
para. 107).  
471 As set out earlier, we refer to the nine duty stipulations that we have found to fall within our terms of 
reference as "DFIS". However, in what remains of our analysis, our references to DFIS are limited to 
Conditions  60(ii), 61, and 36, in their entirety, and Conditions 10 and 21, for one and six items respectively. 
(See paras. 7.154  and 7.267  above).  WT/DS541/R  
 
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  United  States alleges that India foregoes government re venue because each of these schemes 
provides certain exemptions or deductions from taxes and customs duties.472 
7.296.   We first describe the legal standard under Article  1.1(a)(1)(ii) of the SCM Agreement  and 
then apply it to the four schemes at issue.  
7.7.1   The applicable legal standard  under Article 1.1(a)(1)(ii)  
7.297.   Article  1.1(a) (1)(ii) of the SCM Agreement  provides that a financial contribution in the form 
of revenue foregone exists if "government revenue that is otherwise due is foregone or not 
collected (e.g. fiscal incentives such as tax credits)".  
7.298.   The words "foregone" , "not collected"  and "otherwise du e" indicate  that "the government 
has given up an entitlement to raise revenue that it could 'otherwise ' have raised ".473 This 
entitlement cannot be one that is "abstract", because "[a] Member, in principle, has the sovereign 
authority to tax any particular c ategories of revenue it wishes".474 Therefore, to ascertain whether 
there is foregoing of revenue otherwise due, there must be "some defined, normative benchmark 
against which a comparison can be made between the revenue actually raised and the revenue 
that would have been raised 'otherwise'".475 
7.299.   As an analytical tool to apply this legal standard, WTO adjudicators have articulated a 
"three -step test".476  
7.300.   The first step is to identify the tax treatment that applies to the alleged subsidy recipients , 
i.e. the tax treatment that is being challenged.477  
7.301.   The second  step is to identify the treatment that will serve as the benchmark for 
comparison. Given that "Members, in principle, have the sovereign authority to determine their 
own rules of taxation"478, the benchmark fo r comparison "must be the tax rules applied by the 
Member in question"479 to "situations which it is legitimate to compare".480  
7.302.   We note that the measures in relation to which this test was first articulated related to the 
taxation of income . As a result as pa rt of this second step of the test, adjudicators have typically 
referred to the need to identify "comparable income  of comp arably situated taxpayers".481 Not all 
 
472 The parties do not dispute that the alleged foregoing of revenue is "by a government" within the 
meaning of Article 1.1(a)(1), which includes any organ of a Member at any level of go vernment. As will be 
seen below, the duties and taxes that are allegedly foregone are owed to the "government" within the meaning 
of this provision, and the measures pursuant to which such duties and taxes are allegedly foregone are 
legislative and adminis trative instruments adopted by the "government". Therefore, to the extent it is 
established that there is revenue foregone, we are satisfied that such foregoing of revenue is "by a 
government".   
473 Appellate  Body Report s, US – Large Civil Aircraft (2nd complaint) , para. 806; US – FSC, para. 90. 
474 Appellate Body Report, US – FSC, para. 90.  
475 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 806 (quoting Appellate  Body 
Report, US – FSC, para. 90). 
476 Appellate  Body Reports, US – Large  Civil Aircraft (2nd complaint) , paras. 812 -814; Brazil – Taxation , 
paras.  5.162 and 5.196; and Panel Report, US – Tax Incentives , paras. 7.48 -7.51.  
477 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  812. We note that footnote  58 
of the SCM  Agreement distinguishes customs duties and other import charges from taxes. However, when 
speaking of "tax treatment", we use the term "tax" in a broader sense that also encompasses customs duties.  
478 Appellate  Body Report, US – Large Civil Aircraft  (2nd complaint) , para. 808. 
479 Appellate Body Reports, US – FSC, para. 90; US – Large Civil Aircraft ( 2nd complaint) , para. 813. 
480 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  809 (quoting Appellate  Body 
Report, US – FSC ( Article  21.5 – EC), para. 90). For example, "if the measure at issue involves income earned 
in sales transactions, it might not be appropriate to compare the treatment of this income with employment 
income"; and "if the measure at issue is concerned with t he taxation of foreign -source income in the hands of a 
domestic corporation, it might not be appropriate to compare the measure with the fiscal treatment of such 
income in the hands of a foreign corporation". (Appellate  Body Report, US – FSC ( Article  21.5 – EC), 
paras . 90 and 92).  
481 Appellate  Body Report s, US – Large Civil Aircraft (2nd complaint) , para.  813 (emphasis added); 
Brazil  – Taxation , para. 5.163 (emphasis added). More precisely, in US – Large Civil Aircraft (2nd complaint) , 
the tax in relation to which the Appellate Body thus articulated the legal test was a tax imposed on the "gross 
receipts of all businesses operating in Washington", where gross receipts "refer[red] to the gross proceeds of 
 WT/DS541/R  
 
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  instances of revenue foregone, however, involve the taxation of income. For example, tax may be 
levied (or foregone) on the importation of a good, without reference to the taxpayers' income. 
In such an example, the relevant fiscal situation will not be "income" but the importation of goods. 
Therefore, in identifying the fiscal treatment which it is l egitimate to compare, we consider it 
important not to refer mechanically to "income", and instead to keep in mind the nature of the 
measure at issue in each case.  
7.303.   To identify the tax treatment afforded by the Member in question to "fiscal situations which  
it is legitimate to compare"482, we are required "to develop an understanding of the tax structure 
and principles that best explains that Member 's tax regime , and to provide a reasoned basis for 
identifying [the benchmark]".483 At the same time, we note that the rules of taxation of a Member 
are not part of the applicable law in WTO dispute settlement, and that therefore a panel is 
necessarily limited in its analysis to the facts properly before it.  
7.304.   The third step is to compar e the challenged tax treatmen t with the benchmark tax 
treatment. This comparison allows a panel to determine whether, in light of the responding 
Member's treatment of the fiscal situations which it is legitimate to compare, the government is 
foregoing revenue otherwise due.484  
7.305.   The requ irement to compare "the challenged treatment … to an objectively identifiable 
benchmark … does not presuppose … that such a comparison should necessarily be made between 
the group of the entities that allegedly benefits from a subsidy, on the one hand, and  the group of 
all the other entities, on the other hand" .485 Thus, the fact that some taxpayers in the benchmark 
group do not pay "the full amount of the relevant tax … would not necessarily mean that there is 
no revenue foregone with respect to the taxpayer s benefiting from a subsidy" .486 
7.306.   The Appellate Body has held that, as part of this three -step test, adjudicators must 
"consider[] … the objective reasons behind" the challenged tax treatment.487 This observation was 
first made in US – Large Civil Aircraft (2nd complaint) , in the context of a measure which lowered 
the tax rate previously applied, and in connection to which the respondent argued that the 
underlying aim was to counteract certain alleged distortions in the tax system and thus 
"approximate", for the  entities concerned, "the average effective tax rate".488 The Appellate Body 
considered this alleged reason behind the tax treatment, and found that it appeared "to be more in 
the nature of an ex post  explanation" and "the Panel record [did] not support [it] ".489 
7.307.   In US – Tax Incentives , the panel looked into the reasons for the challenged tax treatment 
and found that there was "no evidence" that the resulting difference in tax treatment was 
"reflective of any organizing principle of the [Business and occupation ] tax system"; instead, the 
"express reason" for the different tax treatment was to "incentiviz[e] the maintenance and growth 
 
sales, the gross income of a bu siness, or the value of products, depending upon which is applicable". 
(Panel  Report, US – Large Civil Aircraft (2nd Complaint) , para. 7.47).  
482 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para.  809. 
483 Appellate  Body Report, US – Large  Civil Aircraft (2nd complaint) , para.  813. Moreover, in identifying 
this benchmark (like with other questions of legal characterization), a panel is not bound by the arguments 
raised by the respondent whose tax regime is at issue. (Appellate  Body Report s, Brazil – Taxation , 
para. 5.171).  
484 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 814. 
485 Appellate Body Reports, Brazil – Taxation , para. 5.209. (emphasis original)  
486 Appellate Body Reports, Brazil – Taxation , para. 5.209.  
487 Specifically, the Appellate Body has noted that the first step in the three -step analysis also "entail[s] 
consideration of the objective reasons behind that treatment", and that these reasons must then be taken into 
account as part of the third step in th e analysis, when comparing the challenged treatment with the benchmark 
treatment. (Appellate Body Reports, US – Large Civil Aircraft (2nd complaint) , paras.  812 and 814; Brazil – 
Taxation , para.  5.162 and fn 542. See also Panel Reports, US – Tax Incentives , e.g. paras. 7.49, 7.51, 
7.61-7.63, 7.79 -7.82, 7.87, 7.94, 7.102, 7.107,  7.115, and 7.131, and Brazil – Taxation , paras. 7.394 -7.395, 
7.401, 7.407 -7.413, 7.486 -7.487, and 7.841).  
488 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 819 and 829 (the alleged 
distortion was so -called "pyramiding": ibid. para. 829).  
489 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , paras. 829 and 830, respectively.  WT/DS541/R  
 
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  of Washington State's aerospace industry".490 Consideration of these reasons therefore did not 
detract from a finding that the respo ndent was foregoing revenue otherwise due.491  
7.308.   Similarly, the panel in Brazil – Taxation  considered the reasons for the challenged tax 
treatment. For example, with respect to one set of challenged schemes, the panel found that "the 
alleged reasons relate[d] to the objectives of setting up and developing technology -based 
industries in Brazil, and giving access to [information technology] products to the population".492 
The panel therefore concluded that these alleged reasons did not "impact"493 its findings of 
revenue foregone.   
7.309.   Thus, in summary, adjudicators before us have looked into whether "objective reasons" 
behind the challenged treatment explained that treatment other than as revenue foregone.  
7.310.   India considers that for measures that do not "fall within the am bit of … footnote 1", the 
three -step test is the appropriate framework to analyse revenue foregone.494 However, f or the 
EOU/EHTP/BTP Scheme s, EPCG Scheme, and DFIS495, India makes the cross -cutting argument 
that, since the challenged measures fall under footno te 1, the appropriate framework for analysis 
is not a three -step test under Article 1.1(a)(1)(ii), as set out above. Instead, India argues that the 
Panel must compare the duties or taxes accrued with the duty or tax exemption .496 This is the 
comparison carried out to determine whether there is revenue foregone  under measures that do 
fall within the scope of footnote 1 : with exemption or remission schemes falling under footnote 1, 
only the excess remission is a financial contribution .497 But to the extent we examine them below, 
we have found that the challenged measures fall outside  the scope of footnote 1.498 Therefore, 
"excess" remission under footnote 1 is not the applicable legal standard.   
7.7.2   Whether India foregoes revenue otherwise due  under the Export Oriented Units 
and Sector -Specific Schemes  
7.311.   The United  States  argues that EOU/EHTP/BTP Units are exempt from the payment of 
customs dut ies that would otherwise be due in the absence of the measure , and that, this way, 
India foregoes revenu e otherwise due within the meaning of Article 1.1(a)(1)(ii) .499  
7.312.   India, on the other hand, argues that the EOU/EHTP/BTP Schemes fall under footnote  1 of 
the SCM Agreement , and that therefore "the appropriate comparison analysis is … a comparison of 
duties th at accrued as opposed to those that were exempted ".500 In paragraph  7.310  above,  
however, we have already rejected India's argument in this regard, because we are exami ning 
whether the challenged measures under the EOU/EHTP/BTP  Schemes  are a subsidy precisely to 
the extent that we have already found them to fall outside the scope of footnote  1.  
7.313.   We therefore examine whether India foregoes revenue otherwise due under the 
EOU/EHTP/BTP Schemes, using the analytical framework discussed in the previous section . 
 
490 Panel Report, US – Tax Incentives , para. 7.79. See also e.g. paras. 7. 80-7.82 and 7.87.  
491 Panel Report, US – Tax Incentives , para. 7.79. See also e.g. paras. 7.80 -7.82 and 7.87.  
492 Panel Reports, Brazil – Taxation , para. 7.487.  
493 Panel Reports, Brazil – Taxation , para. 7.487.  
494 India's response to Panel question No. 35, last para. 
495 India makes the same argument also with regard to MEIS. However, the United States has chosen to 
challenge the alleged subsidies under MEIS as a direct transfer of funds, and we find that they are indeed a 
direct transfer of funds. (See  section 7.8 below).  
496 See paras. 7.312 , 7.329 , and 7.405  below.  
497 Appellate Body Report, EU – PET (Pakistan) , para. 5.134.  
498 See paras. 7.236 , 7.247 , and 7.267  above.  
499 United  States'  first written submission, paras.  40-41; second written submission, para.  92; and 
response to Panel question No. 48, paras. 76 and 79.  
500 India's first written submission, paras.  212-213; second written submission, para.  80 (referring to 
Appellate  Body Report, EU – PET (Pakistan) , para.  5.79); responses to Panel question s No. 35, pp.  23-28, 
No. 36, pp. 28 -31 and No.  47, p. 38; and comments on the United States' responses to Panel question No.  48, 
p. 16. WT/DS541/R  
 
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  7.7.2.1   First step:  Applicable treatment  
7.314.   We begin by identifying the tax treatment that allegedly constitutes a financial 
contribution. Section 6.01(d) of the FTP provides, in relevant part:  
(i) An EOU/EHTP/STP/BTP unit may import and/or procure, from DTA or bonded 
warehouses in DTA/international exhibition held in India, all types of goods, including 
capital goods, required for its activities, provided they are not  prohibited items of 
import in the ITC (HS) subject to conditions given at para (ii) & (iii) below. …  
(ii) The imports and/ or procurement from bonded warehouse in DTA or from 
international exhibition held in India shall be without payment of duty of custo ms 
leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and 
additional duty, if any, leviable thereon under Section 3(1), 3(3) and 3(5) of the said 
Customs Tariff Act. …  
7.315.   Thus, for Units under the EOU/EHTP/BTP  Schemes, the importation o r purchase of goods is 
not subject to payment of the customs duties that would otherwise be leviable on those same 
transactions under the 1975 Customs Tariff Act.  
7.316.   Before turning to the second step in the analysis, we consider the "objective reasons" 
behind this tax treatment.501 The underlying legislation states that the objectives of the 
EOU/EHTP/BTP  Schemes "are to promote exports, enhance foreign exchange earnings, and attract 
investment for export production and employment generation ".502 With regard to the objective of 
promoting exports, we also note that the EOU/EHTP/BTP  Schemes impose on participants an 
export obligation and a NFE requirement.503 These elements of the schemes further confirm that 
the promotion of export performance is the cen tral reason behind the tax treatment at issue.504  
7.7.2.2   Second step: Benchmark for comparison  
7.317.   As a second step, we identify the benchmark for comparison, i.e. the "fiscal situations 
which it is legitimate to compare".505 We recall that the challenged tax treatment consists of 
customs duties (not) levied on the importation of goods. The fiscal situation which it is legitimate 
to compare, therefore, must be identified within India's regime for customs duties on the 
importation and domestic procurement of goods.506  
7.318.   In respect of import duties, Section 12 of India's  1962 Customs Act provides:  
Except as otherwise provided in this Act, or any other law for the time being in force, 
duties of customs shall be levied at such rates as may be specified under [the 
Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, 
on goods importe d into, or exported from, India .507 
7.319.   In accordance with Section 12 of the 1962 Customs Act, t he First Schedule of India's  1975 
Customs Tariff Act508 sets forth the rat e of im port duty for the listed products. India's  national 
tariff schedule therefore sets forth the applicable import duties that, in accordance with Section 12 
 
501 See para. 7.316  and fn 487 above.  
502 Section 6 .00(b) of the FTP . 
503 See paras. 7.133  above, and 7.490  below.  
504 Sections 6.00(a), 6.01(d)(i), 6.04, and 6.08 of the FTP.  
505 Appellate  Body Report, US – FSC ( Article  21.5 – EC), para. 90; see also Appellate  Body Report, US – 
Large Civil Aircraft (2nd complaint) , para. 809. On this "second step", see paras. 7.301 -7.303  above.  
506 See e.g. Panel Report, US – Tax Incentives , para. 7.118.  
507 Customs Act (1962) as amende d, Section 12 to Section 15, ( Exhibit USA -8). 
508 Excerpt from Customs Tariff Act (1975) as amended, First Schedule, (Exhibit USA -89). The 
United  States in footnote 259 of its first written submission referred to 
http://www.cbic.gov.in/htdocs -cbec/customs/cst1718 -020218/cst1718 -0202-idx (accessed 8 January 2019) 
which provides India's  Customs Tariff Act (1975) and separately lists the chapters of its First Schedule. In 
response to a request to this effect from the Panel, the United States submitted the first twenty pages of the 
First Schedule as Exhibit USA -89. See also India's  applied tariffs, 
https://www.wto.org/english/thewto_e/countries_e/india_e.htm . WT/DS541/R  
 
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  of the  1962 Customs Act , apply except as otherwise provided. Moreover, Sections  3(1), 3(3), and 
3(5) o f the 19 75 Customs Tariff Act provide for the possibility of imposing additional duties on 
imports equal to the level of excise duty, sales tax, local taxes and other charges applicable on like 
domestic goods . 
7.320.   Taxpayers subject to duties under the 1962 Cus toms Act and 1975 Customs Tariff Act are 
importers of (any) goods into India. Taxpayers under the EOU/EHTP/BTP Schemes are, equally, 
importers of "all types of goods" (subject to certain exclusions) into India.509 Moreover, customs 
duties are an indirect cha rge imposed on the goods themselves upon their importation, rather than 
a direct tax that would vary, for example, based on taxpayers' income. Therefore, for the purpose 
of an analysis of India's customs duties on importation, taxpayers subject to duties u nder 
the 1962 and 1975 Acts, and taxpayers exempt from those duties under the EO U/EHTP/BTP 
Schemes, are comparably situated.  
7.321.   We have asked both parties to identify the normative benchmark against which the 
customs duty treatment under the EOU/EHTP/BTP Sche mes must be assessed. The parties have 
not identified other elements of India's tax rules as forming part of the relevant normative 
benchmark.510 
7.322.   We therefore consider that the tax structure and principles outlined in 
paragraphs  7.318-7.320  provide the basis for identifying the treatment of comparable fiscal 
situations, i.e. of the i mportation of goods into India by comparably situated taxpayers. The 
express wording of the relevant statutes contemplates rates of customs duties applicable to "goods 
imported into … India" ("[e]xcept as otherwise provided"). We also note that the EOU/EHT P/BTP 
Schemes explicitly refer to the 1975 Customs Tariff Act  as setting out the customs  duty liability 
from which EOU/EHTP/BTP Units are exempt511, which provides a further indication that the tax 
treatment under the 1975 Customs Tariff Act  is the relevant benchmark for us to identify under 
the second step in the analysis.512  
7.323.   We therefore consider that the customs duty liabilit y and rates set out under 
Section s 3(1), 3(3) , and 3(5)  and the First Schedule of the 1975 Customs Tariff Act  are the 
appropriate benc hmark for comparison.  
7.7.2.3   Third step: Comparison of the applicable treatment with the benchmark  
7.324.   We now turn to comparing the tax treatment identified under the first step in the analysis 
with the benchmark identified in the second step in the analysis.513  
7.325.   As se t out above, the 1975 Customs Tariff Act  (at its First Schedule  and Section s 3(1), 
3(3), and 3(5) ), in accordance with the 1962 Customs Act, provides that the importation of goods 
into India is subject to the customs duties set out thereunder. By contrast,  under Section 6.01(d) 
of the FTP, EOU/EHTP/BTP  Units may import goods into India " without payment of duty of customs 
leviable thereon under the First Schedule to the Customs Tariff Act, 1975 and additional duty, if 
any, leviable thereon under Section 3(1) , 3(3) and 3(5) of the said Customs Tariff Act ". Therefore, 
the 1975 Customs Tariff Act entitles India to collect the specified customs duties on the 
importation of goods, and under the challenged EOU/EHTP/BTP Schemes India foregoes that 
revenue in case of the importation of the same goods by particip ating Units.  
 
509 Section 6.01(d)  of the FTP.  
510 United States' response to Panel question No.  48, para. 76; India's response to Panel question 
No. 47, p. 38.  
511 Section  6.01(d)(ii) of the FTP.  
512 As we will see b elow, other schemes, too, provide for certain exemptions from customs duties. India 
has not argued that, taken together, these schemes indicate that the rules set out in the Customs Act  (1962) 
and Customs Tariff Act (1975) are not the relevant benchmark. B ased on the evidence before us, outside these 
and possibly other schemes providing for certain exemptions, the applicable customs duties are those provided 
for under the Customs Act  (1962) and  Customs Tariff Act  (1975). The evidence before us does not lead  us to 
conclude that India's choice to provide for exemptions under a number of schemes disqualifies the duties under 
the 1962 and 1975 Acts as a legitimately comparable benchmark. See also e.g. Panel Report, US – Tax 
Incentives , para. 7.125.  
513 Appellate B ody Reports, US – Large Civil Aircraft (2nd complaint) , para. 814; Brazil – Taxation , 
para. 5.162; and Panel Report, US – Tax Incentives , para. 7.51.  WT/DS541/R  
 
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  7.326.   We recall that the objective reason behind this different treatment is the promot ion of  
exports  and investments.514 Consideration of this reason does not suggest that the different tax 
treatment can be explained as treating different fiscal sit uations differently, rather than as the 
foregoing of revenue otherwise due.  
7.327.   We therefore conclude that by exempting the importation of goods by EOU/EHTP/BTP Units 
from customs duties, India foregoes revenue otherwise due within the meaning of 
Article  1.1(a )(1)(ii), and therefore provides a financial contribution.  
7.7.3   Whether India foregoes revenue otherwise due under the Export Promotion 
Capital Goods Scheme  
7.328.   The United  States argues that the EPCG scheme exempts a participant from the payment 
of customs duties o therwise due on the import ation of capital goods used for export 
pre-production, production, and post -production.515 According to the United  States, comparably 
situated enterprises importing the same capital goods must pay customs duties according to 
India's  national tariff schedule. The United  States refers to the Indian customs legislation to show 
that enterprises participating in the EPCG scheme receive an exemption from the payment of 
customs duties that comparably situated enterprises in India must instead pay.516 
The United  States contends that therefore India foregoes  revenue otherwise due within the 
meaning of Article  1.1(a)(1)(ii).517 
7.329.   According to India, the customs duty exemption falls within the scope of footnote  1 and 
Annex es I(g), I(h), and I(i), and therefore the appropriate comparison is not between comparably 
situated enterprises, but rather between  duties accrued and duties from which EPCG participants  
were exempted.518  
7.330.   However, i n paragraph  7.310  above , we have already rejected India's argument in this 
regard , because we have already found that the duty exemption under the EPCG Scheme falls 
outside the scope of footnote  1. We therefore proceed with our analysis using the framework 
discussed in paragraphs  7.297 -7.308 . 
7.7.3.1   First step: Applicable treatment  
7.331.   We begin by identifying the tax treatment that allegedly constitutes a financial 
contribution. Section 5.01(a) of the FTP provides that the "EPCG Scheme allow s import of capital 
goods … for pre -production, production and post -production at zero customs duty ".519 That is, the 
importation of capital goods under the EPCG Scheme is subject to a customs duty rate of zero.  
7.332.   Before turning to the second step in the analy sis, we consider the "objective reasons" 
behind this duty treatment.520 The underlying legislation states that the objectives of the EPCG 
Scheme are "to facilitate import of capital goods for producing quality goods and services and 
enhance India's  manufactu ring competitiveness ".521 Elsewhere, India has stated that "[t] he 
objective of the EPCG Scheme is to facilitate import of capital goods for producing quality goods 
and services to enhance India's  export competitiveness ".522 Moreover, the scheme imposes an 
export obligation, which also indicates that the promotion of export performance is the objective 
 
514 See para. 7.316  above.  
515 United  States'  first written submission, para.  72. 
516 United  States'  first written submission, fn 130; response to Panel question No. 50, paras. 81 -82. 
517 United  States'  first written submission, para.  73. 
518 India's first written submission, paras.  309-310; second written submission, para.  138 (referring to 
Appellate  Body Report, EU – PET (Pakistan) , para.  5.79); responses to Panel question s No. 35, pp.  23-28, 
No. 36, pp. 28 -31, and No.  49, p. 39; and comments on the United States' responses to Panel question No.  50, 
p. 17. 
519 Emphasis added.  
520 See para. 7.306  and fn  487 above.  
521 Section 5.00 of the FTP. (emphasis added)  
522 MIS [Management Information System] Report on Export Promo tion Schemes, (Exhibit  USA-55), 
Foreword and Chapter II, p. 10; Ministry of Commerce and Industry Department of Commerce, Annua l Report, 
2017-2018, (Exhibit USA-56), p. 64. (emphasis added)  WT/DS541/R  
 
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  reason for the duty treatment at issue523, and a further indication of this comes from the reference 
to "export promotion" in the name of the scheme.524 
7.7.3.2   Second step: Benchmark for comparison  
7.333.   As a second step, we identify the benchmark for comparison, i.e. the fiscal situation which 
it is legitimate to compare. We recall that the challenged tax treatment consists of the customs 
duty treatment of imported goods. The fiscal situation that it is legitimate to compare, therefore, 
must be identified within India's regime for customs duties on the importation of goods.525  
7.334.   In paragraphs 7.318 -7.319  above, we described the relevant customs rules that apply to 
the importation into India of goods, including capital goods, under the  1962 Customs Act and the 
1975 Customs Tariff Act . The 1962 Customs Act provides that the "duties of customs" at the rates 
set forth under the 1975 Customs Tariff Act "shall be levied … on goods imported into India". 
The First Schedule of the 1975 Customs Tariff Act  lists the rat es of duty applicable on importation, 
by tariff heading and subheading, as required by the 1962 Customs Act.   
7.335.   Taxpayers exempt from duties on capital goods under the EPCG Scheme are importers of 
capital goods into India. Taxpayers subject to duties on the importation of those same goods 
under the 1962 Customs Act and 1975 Customs Tariff Act are, equally, importers of capital goods 
into India. Moreover, customs duties are an indirect charge imposed on the goods themselves 
upon their importation  or exportation, rather than a direct tax that would vary, for example, based 
on taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on the 
importation of capital goods, taxpayers subject to duties under the 1962 and 1975  Acts, and 
taxpayers exempt from those duties under the EPCG Scheme, are comparably situated.  
7.336.   We have asked both parties to identify the normative benchmark against which the tax 
treatment under the EPCG Scheme must be assessed. The parties have not identi fied other 
elements of India's tax rules as forming part of the relevant normative benchmark.526  
7.337.   We therefore consider that the customs duty liability and rates set forth under the 
1962 Customs Act and the 1975 Customs Tariff Act are an appropriate benchmar k for assessing 
whether India foregoes revenue under the EPCG Scheme.527  
7.7.3.3   Third step: Comparison of the applicable treatment with the benchmark  
7.338.   We now compare the tax treatment identified under the first step in the analysis with the 
benchmark identified in the second step in the analysis.  
7.339.   As set out above, the 1975 Customs Tariff Act , in accordance with the 1962 Customs Act, 
provides that the importation of all goods (including capital goods) into India is subject to the 
customs duties set out thereunder. B y contrast, under Section 5.01 of the FTP, EPCG participants 
can import capital goods into India "at zero customs duty". Therefore, the 1975 Customs Tariff Act 
entitles India to collect the specified customs duties on the importation of capital goods, wher eas 
under the challenged EPCG Scheme India foregoes that revenue in case of the importation of the 
same goods by participants in the scheme.  
7.340.   We recall that the reason for this different treatment is the promot ion of  manufacturing 
and export competitivenes s.528 Consideration of this reason does not suggest that the different tax 
treatment is explained by differences in the underlying fiscal situation, and therefore does not 
detract from our finding that India is foregoing revenue otherwise due.  
 
523 Sections 5.01(c) and 5.04(b) of the FTP.  
524 Heading of Chapter 5 of the FTP.  
525 See e.g. Panel Report, US – Tax Incentives , para. 7.118.  
526 United States' response to Panel question No. 50, paras. 81 and 82; India's response to Panel 
question No.  49, p. 39.  
527 See also fn 512 above.  
528 See para. 7.332  above.  WT/DS541/R  
 
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  7.341.   We therefore c onclude that, by exempting from customs duties the importation of capital 
goods under the EPCG Scheme, India foregoes revenue otherwise due within the meaning of 
Article  1.1(a)(1)(ii), and thus provides a financial contribution.  
7.7.4   Whether India foregoes reve nue otherwise due under the Special Economic Zones 
Scheme  
7.342.   To recall, the US challenge in respect of the SEZ Scheme extends to529: 
a. The e xemption from customs dut ies on imports and exports530; 
b. The e xemption from IGST531; and  
c. The deduction of export earnings from t he income on which income tax is levied.532 
7.343.   The United  States argues that SEZ Units benefit from exemptions from  or reductions in 
duties and taxes that would otherwise be due in the absence of the measure.533 According to the 
United States, enterprises that do  not participate in the SEZ Scheme must generally pay these 
duties and taxes. The United  States refers to the Indian customs and tax legislation to show that 
enterprises participating in the SEZ Scheme receive an exemption from, or reduction of, the 
paymen t of customs duties and taxes that comparably situated enterprises in India must pay.534 
The United  States contends that therefore the challenged exemptions and deductions under the 
SEZ Scheme constitute financial contributions in the form of "government rev enue that is 
otherwise due [that] is foregone or not collected" within the meaning of Article  1.1(a)(1)(ii).535 
7.344.   India argues that the United States has failed to establish that the challenged aspects of 
the SEZ Scheme are export contingent.536 India therefore asks the Panel not to consider whether 
the challenged measures under the SEZ Scheme constitute subsidies within the meaning of 
Article  1 of the SCM Agreement .537  
7.345.   Using the three -step framework for analysis discussed above, we will examine, in turn, the 
exem ption from customs duties, the exemption from IGST, and the deduction from corporate 
income tax . 
7.7.4.1   The exemption from customs duties on imports and exports  
7.7.4.1.1   First step: Applicable treatment  
7.346.   We begin by identifying the challenged tax treatment through which India allegedly 
foregoes revenue otherwise due, as well as considering the objective reasons for this tax 
treatment.  
7.347.   Section 26(1)(a) of the SEZ Act provides for:  
 
529 The United States only challenges this treatment insofar as accorded to SEZ "Units"; it does not 
challenge (where applicable) the same treatment granted to developers of SEZs or entrepreneurs establishing 
SEZ Units (United States' responses to Panel questions No. 74, para. 119 and No.  76, para.  121). For the 
definitions of "developer", "entrepreneur" an d "Unit", see paras.  7.147 -7.149  above.  
530 Section 26(1)(a) (for imports) an d Section 26(1)(b) (for exports) of the SEZ Act.  
531 Notification No. 15/2017, (Exhibit USA -27). 
532 Section 27 and the Second Schedule of the SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA , 
(Exhibit USA -29). 
533 United  States'  first written submission, paras. 110 -117. 
534 United  States'  first written submission, paras.  110, 112, 114, and 116; response to Panel question 
No. 67, paras. 92 -96. 
535 United  States'  first written submission, paras. 105 -106 and 109; second w ritten submission, 
para. 136. 
536 India's first written submission, para. 329; opening statement at the meeting of the Panel, 
para. 105; and response to Panel question  No. 64, p. 51.  
537 India's first written submission, para. 329; opening statement at the mee ting of the Panel, 
para. 105; response s to Panel question s No. 64, p. 51 and No.  66, p. 52.  WT/DS541/R  
 
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  [E]xemption  from any duty of customs, under the Customs Act, 1962 or the Customs 
Tariff Act, 1975 or any other law for the time being in force, on goods imported  into, 
or services  provided in, a Special Economic Zone or a Unit, to carry on the authorized 
operations b y the Developer or entrepreneur.538 
7.348.   Similarly, Section 26(1)(b) of the SEZ Act provides for:  
[E]xemption from any duty of customs, under the Customs Act, 1962 or the Customs 
Tariff Act, 1975 or any other law for the time being in force, on goods exported  from, 
or services  provided, from a Special Economic Zone or from a Unit, to any place 
outside India.539 
7.349.   Thus, the SEZ Act exempts SEZ Units540 from "a ny duty of customs, under the Customs 
Act, 1962  or the Customs Tariff Act , 1975  or any other law for the time bei ng in force ", on the 
importation and exportation of goods  into and from India.541 
7.350.   Before turning to the second step in the analysis, we consider the objective reasons for 
this fiscal treatment.542 India contends that the SEZ Scheme is not an export promotion s cheme543 
and "cannot be reduced to the promotion of exports".544 Instead, the scheme "is […] integral to 
the maintenance of the sovereignty and integrity of India", and its measures are "designed to 
increase the production capacity of the SEZ Units, and result  in additional economic activity, 
promotion of investment, and creation of employment opportunities".545 
7.351.   The opening paragraph of the SEZ Act describes it as an " Act to provide for the 
establishment, development and management of the Special Economic Zones f or the promotion of 
exports and for matters connected therewith or incidental thereto" .546 This suggests that the 
central objective of the Act and the measure set forth in it is the promotion of exports, other 
matters being "connected therewith or incidental  thereto". Further, the NFE requirement is a 
central operational characteristic of the SEZ Scheme, in line with the central objective of 
promoting exports.547  
7.352.   In addition, Indian officials have stated548 that "[t] he Special Economic Zones (SEZs) 
scheme has be en a key instrument for promoting exports from India"549 and that " SEZ Act and 
Rules provide a very competitive package for setting up export -oriented manufacturing and 
services units "550. Likewise, India's  Minister of Commerce and Industry observed that "SEZ 
Schemes are important components of [India's]  export promotion efforts contributing about 
 
538 SEZ Act. (emphasis added)  
539 SEZ Act. (emphasis added)  
540 The United States' challenge in the present case does not extend to the exemptions, if any, afforded 
to entities other than SEZ Units. (See fns 251 and 529 above).  
541 See e.g. Uni ted States' first written submission, paras. 103, 112, and 114.  
542 See para. 7.306  above.  
543 India's  first written submission, para.  321; second written submission, paras.  152-155. 
544 India's  first written submission, para.  322; second written submission, para.  149; and  opening 
statement at the meeting of the Panel, paras. 87 and 88.  
545 India's second written submission, para. 154. (fn omitte d) 
546 First page of the SEZ Act.  
547 India argues that the NFE requirement is not meant to induce exports ( India's first written 
submission, para . 348). We address this argument in the discussion of export contingency . 
548 India objects to giving probative valu e to "the subjective statements of government officials". 
We note however that w ith regard to the "objective reasons" behind the challenged tax  and duty treatment , 
previous panels have relied on published government statements explaining the objective of t he challenged 
measures, and press statements by government officials, as well as on the text of the relevant legislation or 
instrument, the operation of the scheme, and other evidence. India's second written submission, para. 156. 
See ibid., para. 157 and opening statement at the meeting of the Panel, para. 89 ; Panel Reports, Brazil – 
Taxation , paras.  7.407 , 7.409 , 7.410 , 7.486 , 7.832, 7.833, 7.841, 7.1157 , 7.1159 -7.1162 , and 7.1210 ; US – 
Tax Incentives , paras.  7.62-7.63; and US – Large Civil Aircraft (2nd complaint) (Article 21.5 – EU), 
paras.  8.875 , 8.994 -8.996 , and 8.1035 . 
549 Address by  Shri Anand Sharma  (Annual Supplement 2013 -2014 to the Foreign Trade Poli cy 
2009-2014, (Exhibit  USA-23), para. 25) . 
550 Nirmala Sitharaman, "SEZ scheme of India is quite comprehensive ", Daily News and Analysis , 
(20 December 2014 ), (Exhibit  USA-24). WT/DS541/R  
 
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  one-third of our national exports ".551 And India's  Ministry of Electronics and Information 
Technology recognizes the SEZ Scheme as an " export promotion scheme ".552 These statements 
confirm what the text of the SEZ Act and the operational characteristics of the Scheme indicate, 
namely,  the central role of exp ort promotion as a reason for the measures comprising the 
SEZ Scheme.  
7.353.   India points out that the SEZ Act also describes a range of considerations that must guide 
the Central Government of India in discharging its functions under the SEZ Act.553 These 
consider ations that must guide the Government include, together with the "promotion of exports 
of goods and services", the generation of additional economic activity, the promotion of 
investment from domestic and foreign sources, the creation of employment opportu nities, the 
development of infrastructure facilities, and the maintenance of the sovereignty and integrity of 
India, the security of the State and friendly relations with foreign States.554 
7.7.4.1.2   Second step: Benchmark for comparison  
7.354.   As a second step, we identify the benchmark for comparison, i.e. the fiscal situations that 
it is legitimate to compare. We recall that the challenged tax treatment consists of the customs 
duty treatment of the importation and exportation of goods. The fiscal situation that it is legit imate 
to compare, therefore, must be identified within India's regime for customs duties on the 
importation and exportation of goods.555  
7.355.   Section 12 of India's  1962 Customs Act provides:  
Except as otherwise provided in this Act, or any other law for the time  being in force, 
duties of customs shall be levied at such rates as may be specified under [the 
Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, 
on goods  importe d into, or exported from, India .556 
7.356.   In accordance with Secti on 12 of the 1962 Customs Act, t he First Schedule of India's  1975 
Customs Tariff Act557 sets forth the rat e of impor t duty for the listed products558, and the 
Second  Schedule of India 's 1975 C ustoms Tariff Act se ts forth the rate of export  duty for the listed 
products.559 
7.357.   We have asked both parties to identify the normative benchmark against which the 
exemption from customs duties on importation and exportation under the SEZ Scheme must be 
assessed. The parties have not identified other elements of India's tax ru les as forming part of the 
relevant normative benchmark.560  
7.358.   We also note that the SEZ Act explicitly refers to the 1962 Customs Act and the 
1975 Customs Tariff Act (and "any other law for the time being in force", which is also the wording 
used in the 1962 Customs Act) as laying down the duties with regard to which it sets forth 
"exemption[s]".561  
7.359.   Taxpayers subject to duties on importation and exportation under the 1962 Customs Act 
and 1975 Customs Tariff Act are importers or exporters, respectively, of goods. Taxpayers exempt 
 
551 "Export Champions", The Economic Times , (12 February 2018), (Exhibit USA -4). 
552 Export Promotion Schemes, (Exhibit USA -35). 
553 Section 5 of the SEZ Act. See also India's  second written submission, para.  154. 
554 Section 5 of the SEZ Act.  
555 See e.g. Panel Report, US – Tax Incentives , para. 7.118.  
556 Customs Act (1962) as amended, Section 12 to Section 15, ( Exhibit USA -8). 
557 Excerpt from Customs Tariff Act (1975) as ame nded, First Schedule, (Exhibit USA -89). See fn 508 
above . 
558 United States' first written submission, para. 112; response to Panel question No. 67, para. 95.  
559 Custom s Tariff Act, (Ex hibit USA-31), Second Schedule ; United States' first written submission, 
para. 114; and response to Panel question No. 67, para. 95.  
560 United States' response to Panel question No.  67, paras. 94-95; India's response to Panel question 
No. 66, p. 52;  and comments on the United States' response to Panel question No. 67 . 
561 Section 26(1)(a) -(b) of the  SEZ Act. As regards customs duties on importation, see also fn 512 
above.  WT/DS541/R  
 
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  from those duties under the SEZ Scheme are, equally, importers or exporters of goods. Moreover, 
customs duties are an indirect charge imposed on the goods themselves upon their importation or 
exportation, rather tha n a direct tax that would vary, for example, based on taxpayers' income. 
Therefore, for the purpose of an analysis of India's customs duties on importation and exportation, 
taxpayers subject to duties under the 1962 and 1975 Acts, and taxpayers exempt from  those 
duties under the SEZ Scheme, are comparably situated.  
7.360.   We therefore consider that the customs duty liabilities and rates set out under the 
1962 Customs Act and the 1975 Customs Tariff Act  for the importation and exportation of goods  
are the appropria te benchmark for comparison.  
7.7.4.1.3   Third step: Comparison of the applicable treatment with the benchmark  
7.361.   As a third step, we compare the tax treatment identified under the first step in the analysis 
with the benchmark treatment identified in the second step in t he analysis.  
7.362.   As described above, the 1962 Customs Act provides that goods imported into, or exported 
from, India, are subject to the customs duties set forth in the 1975 Customs Tariff Act (and "any 
other law for the time being in force"562). By contrast, t he SEZ Act exempts goods imported or 
exported by SEZ Units from those same customs duties. Therefore, under the SEZ Scheme, India 
foregoes revenue otherwise due in the form of customs duties on goods imported or exported by 
SEZ Units.  
7.363.   We recall our earlier  finding that the promotion of exports is a key reason behind the 
SEZ Scheme, as well as our observation that, according to India, other reasons for the Scheme 
include the generation of additional economic activity, investment, and employment, and the 
maintenance of India's sovereignty.563 None of these reasons explains the different tax treatment 
otherwise than as the foregoing of revenue, and therefore none of these reasons detracts from our 
finding that India is foregoing revenue otherwise due.  
7.364.   We therefor e conclude that by exempting from customs duties the importation and 
exportation of goods by SEZ Units, India foregoes revenue otherwise due within the meaning of 
Article 1.1(a)(1)(ii), and thus provides a financial contribution.  
7.7.4.2   The exemption from IGST  
7.7.4.2.1   First step: Applicable treatment  
7.365.   Turning to the exemption from IGST, we begin by identifying the challenged tax treatment. 
This is set out in Notification No. 15/2017, which:  
exempts  all goods or services or both imported by a unit or a developer in the Special 
Economic Zone, from the whole of the integrated tax leviable thereon under 
sub-section  (7) of section 3 of the Customs Tariff Act, 1 975 (51 of 1975) for 
authorised operations.564 
7.366.   Thus, Notification No. 15/2017  exempts SEZ Units from payment of IGST on the 
importation of goods .565  
7.367.   We have considered the reasons for the fiscal treatment under the SEZ Scheme in 
paragraphs  7.350 -7.353 , and we refer to that discussion, which applies equally here.  
 
562 Customs Act (1962) as amended, Section 12  to Section 15, ( Exhibit USA -8), Section 12 . 
563 See paras. 7.350 -7.353 above.  
564 Notification No.  15/2017, (Exhibit USA -27). Notification No. 15/2017 refers to t he importation by an 
SEZ Unit or an SEZ developer. However, the United States' challenge in the present case is limited to the 
exemption granted to SEZ Units. (See fns 251 and 529 above).  
565 Notification No. 15/2017 "exempts … goods or services". But as we will see below, the provision 
derogated from, i.e. Section 3(7) of the C ustoms Tariff Act (1975), only refers to "articles". The United States, 
too, only refers to an exemption as it relates to goods: see e.g. United States' first written submission, 
paras.  116 and 117.  WT/DS541/R  
 
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  7.7.4.2.2   Second step: Benchmark for comparison  
7.368.   As a second step, we ident ify the benchmark for comparison, i.e. the fiscal situations that 
it is legitimate to compare. We recall that the challenged tax treatment consists of an exemption 
from IGST on the importation of goods, where IGST is an "integrated goods and services tax", 
similar to value added tax, which is levied on interstate transactions and on import transactions.566 
The fiscal situation that it is legitimate to compare, therefore, must be identified within India's 
regime for such taxes as it applies to th e importation of goods.567  
7.369.   Section 5(1) of the IGST Act stipulates that:  
[T]here shall be levied a tax called the integrated goods and services tax on all 
inter-State supplies of goods or services … at such rates, not exceeding forty per cent, 
as may be not ified by the Government … [p]rovided that the integrated tax on goods 
imported into India shall be levied and collected in accordance with the provisions of 
section 3 of the Customs Tariff Act, 1975 [concerning the levy of additional duty equal 
to excise d uty, sales tax, local taxes and other charges] on the value as determined 
under the said Act at the point when duties of customs are levied on the said goods 
under section 12 of the Customs Act, 1962.568 
7.370.   Section 3(7) of the 197 5 Customs Tariff Act provides t hat: 
Any article  which is imported into India shall, in addition, be liable to integrated tax at 
such rat e, not exceeding forty per cent  as is leviable under section 5 of the Integrated 
Goods and Services Tax Act, 2017 on a like Article  on its supply in In dia, on the value 
of the imported article  as determined under sub -section (8)  or sub -section (8A), as 
the case may be.569 
7.371.   Thus, taken together, Section 5(1) of the IGST Act and Section 3(7) of the 1975 Customs 
Tariff Act impose the applicable IGST on all goo ds imported into India.  
7.372.   Pursuant to Section 6 of the IGST Act, the Government may lay down exemptions from 
IGST where it "is satisfied that it is necessary in the public interest".570 It may lay down 
exemptions "generally" for "goods or services or both of any specified description", "either 
absolutely or subject to such conditions as may be specified therein".571 Or, "under circumstances 
of an exceptional nature", it may individually exempt from payment of the IGST "goods or services 
… on which tax is leviabl e".572 
7.373.   Notification No. 15/2017, which sets out the challenged tax exemption, was adopted "[i]n 
exercise of the powers conferred by sub -section (1) of section 6 of the Integrated Goods and 
Service Tax Act, 2017 "573, i.e. it was expressly worded as a derogation  from the IGST liability that 
is otherwise set forth in the IGST Act. Further, Notification No. 15/2017 is expressly worded as an 
exemption from Section 3(7) of the 19 75 Customs Tariff Act, i.e. the provision extending the IGST 
to imports.  
 
566 Integrated Goods and Services Tax Act, (Ex hibit USA-32), Section 5(1) . 
567 See e.g. Panel Report, US – Tax Incentives , para. 7.118.  
568 Integrated Goods and Services Tax Act, (Ex hibit USA-32), Section 5(1) . The applicable tax rates can 
be found at: https://cbec -gst.gov.in/gst -goods -services -rates.html  (accessed on 25  March 2019), also 
submitted as Indian Ministry of Finance, Department of Revenue  website,  Rates of Goods and Services Tax 
(accessed 14  March 2019 ), (Exhibit USA -65). 
569 Customs Tariff Act (1975) as amended, (Exhibit USA -87), Section 3(7) . The United States initially 
submitted a version of the Customs Tariff Act  (1975), (Exhibit USA -7) that contained an outdated version of 
Section 3(7) . In response to a request to this ef fect from the Panel, the United States submitted the updated 
version of the Customs Tariff Act (1975), including the updated Section 3(7), as Exhibit USA -87.  
570 Integrated Goods and Services Tax Act, (Exhibit USA -32), Section s 6(1)-(2). 
571 Integrated Goods and Services Tax Act, (Exhibit USA -32), Section 6(1) . 
572 Integrated Goods and Services Tax Act, (Exhibit USA -32), Section 6(2).  
573 Notification No. 15/2017, (Exhibit USA -27). WT/DS541/R  
 
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  7.374.   In response to our request to parties that they identify the relevant normative benchmark, 
neither party has identified elements of India's tax regime other than those set out above.574 
7.375.   Taxpayers subject to IGST on imported goods under the 1962 Customs Act and 1975 
Customs  Tariff Act are importers of goods into India. Taxpayers exempt from IGST under the SEZ 
Scheme are, equally, importers of goods into India. Moreover, the IGST is an indirect tax imposed 
on the goods themselves (for present purposes, upon the importation of  the goods), rather than a 
direct tax that would vary, for example, based on taxpayers' income. Therefore, taxpayers subject 
to IGST on importation under the 1975 Customs Tariff Act, and taxpayers exempt from IGST on 
importation under the SEZ Scheme, are c omparably situated.  
7.376.   We therefore consider that the IGST liability and rates set out under the IGST  Act and the 
1975 Customs Tariff Act  for the importation of goods  are the appropriate benchmark for 
comparison.  
7.7.4.2.3   Third step: Comparison of the applicable  treat ment with the benchmark  
7.377.   As a third step, we compare the tax treatment identified under the first step in the analysis 
with the benchmark treatment identified in the second step in the analysis, also taking  into 
account the reasons  behind the challenged tax  treatment.  
7.378.   As described above, Section 3(7) of the 19 75 Customs Tariff Act, extending Section 5(1) of 
the IGST Act to imported goods, entitles India to collect the IGST on "[a]ny article which is 
imported into India". By contrast, Notification No. 15/201 7, expressly derogating from Section 
3(7) of the 19 75 Customs Tariff Act, provides that the IGST shall not be levied on goods imported 
by an SEZ  Unit. Therefore, under the SEZ Scheme, India foregoes revenue otherwise due in the 
form of the IGST on imported  goods.  
7.379.   We recall our earlier finding that the promotion of exports is a key reason behind the 
SEZ Scheme, as well as our observation that, according to India, other reasons for the Scheme 
include the generation of additional economic activity, investment,  and employment, and the 
maintenance of India's sovereignty.575 None of these reasons explains the different tax treatment 
otherwise than as the foregoing of revenue, and therefore none of these reasons detracts from our 
finding that India is foregoing reven ue otherwise due.  
7.380.   We therefore conclude that by exempting from IGST the importation of goods by 
SEZ Units, India foregoes revenue otherwise due within the meaning of Article 1.1(a)(1)(ii) , and 
thus provides a financial contribution . 
7.7.4.3   The deduction from corporate income tax  
7.381.   We now turn to the challenged deduction from the base on which income tax is levied.  
7.7.4.3.1   First step: Applicable treatment  
7.382.   We begin by identifying the challenged tax treatment through which India allegedly 
foregoes revenue otherwise due.  
7.383.   Section 27 of the SEZ Act provides that:  
The provisions of the Income -tax Act, 1961, as in force for the time being, shall apply 
to, or in relation to, the Developer or entrepreneur for carrying on the authorised 
operations in a Special Econ omic Zone or Unit subject to the modifications specified in 
the Second Schedule.576 
 
574 United States' response to Panel question No.  67, paras. 94-95; India's response to Panel question 
No. 66, p. 52; and  comments on the United States' response to Panel question No. 67 . 
575 See paras. 7.350 -7.353  above.  
576 SEZ Act. WT/DS541/R  
 
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  7.384.   The Second Schedule of the SEZ Act modifies India's  1961 Income Tax Act in relevant part 
to the effect that:  
Subject to the provisions of this section, in computing the total  income of an assessee, 
being an entrepreneur as referred to in clause (j) of section (2) of the Special 
Economic Zones Act, 2005, from his Unit, who begins to manufacture or produce 
articles  or things or provide any services during the previous year relev ant to any 
assessment year commencing on or after the 1st day of [April, 2006, a deduction of] — 
(i) hundred per cent of profits and gains derived from the export, of such articles  or 
things or from services for a period of five consecutive assessment years  beginning 
with the assessment year relevant to the previous year in which the Unit begins to 
manufacture or produce such articles  or things or provide services, as the case may 
be, and fifty per cent of such profits and gains for further five assessment y ears and 
thereafter[.]577 
7.385.   Thus, the SEZ Act and its Second Schedule, and the Income Tax Act as accordingly 
amended, entitle SEZ Units to deduct from taxable income 100% of profits from exports of goods 
and services during the first five years of operation, a nd 50% for five further years.  
7.386.   We have considered the reasons for the fiscal treatment under the SEZ Scheme in 
paragraphs  7.350 -7.353 , and we refer to that discussion, which applies equally here.  
7.7.4.3.2   Second step: Benchmark for comparison  
7.387.   As a second step, we identify the benchmark for comparison, i.e. the fiscal situations which 
it is legitimate to compare.  
7.388.   As we have seen above, the United States challenges tax treatment consisting of a 
deduction granted by India "in computing the total income of" an SEZ entrepreneur from an SEZ 
Unit, for purposes of the Income Tax Act.578 Specifically,  with regard to goods, SEZ entrepreneurs 
are allowed to deduct from the total income of SEZ Units all or part of the "profits and gains 
derived from the export of … articles or things or … services".579  
7.389.   The benchmark for comparison, therefore, must be the t ax treatment of "legitimately 
comparable income"580 "for taxpayers in comparable situations".581 By way of example, income 
might not be legitimately comparable "if the measure at issue involves income earned in sales 
transactions, [and that income is compared with] employment income".582 As for the comparability 
of taxpayers , again by way of example, "a domestic corporation" might not be comparably situated 
to a "foreign corporation".583 Thus, in the case of income from export sales earned by SEZ Units, 
which are l ocated in India, the income earned by other undertakings located in India from the 
exportation of goods and services  provides an appropriate benchmark for comparison . 
7.390.   To identify the benchmark for comparison, the United States relied on Section 80A of 
India's 1961 Income Tax Act. This provision, titled "[d] eductions to be made in computing total 
income ", states in relevant part:  
 
577 SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA , (Exhibit USA -29) (fn omitted). The cited 
language is from Section 10AA. Section 10A provided for the equivalent deduction f or SEZ Units having begun 
production before the year preceding "the assessment year commencing on or after the 1st day of April, 2006", 
and which were initially located in a free trade zone or export processing zone.  
578 Second Schedule of the SEZ Act; Income T ax Act, 1961, Sections 10A and 10AA , (Exhibit USA -29), 
Section 10AA . 
579 Second Schedule of the SEZ Act; Income Tax Act, 1961, Sections 10A and 10AA , (Exhibit USA -29), 
Section 10AA . 
580 Appellate Body Report, US – FSC (Article 21.5  – EC), para. 91.  
581 Appellate  Body Report, US – FSC (Article 21.5  – EC), para. 92. See also ibid. para. 98 ("the fiscal 
treatment of comparable income, in the hands of taxpayers in similar situations").  
582 Appellate Body Report, US – FSC (Article 21.5  – EC), para. 90.  
583 Appellate Body Report, US – FSC (Article 21.5  – EC), para. 92.  WT/DS541/R  
 
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  (1) In computing the total income of an assessee, there shall be allowed from his 
gross total income, in accordance with and subject to the provisions of this Chapter, 
the deductions specified in sections 80C to [80U].584 
7.391.   Because this provision expressly enu merates the deductions that are allowed "[i]n 
computing the total income of an assessee", the United States infers from it that, "as a general 
rule, profits are not deductible", and considers that this inability to deduct profits is the 
appropriate benchma rk for comparison.585  
7.392.   India does not contest the United States' reliance on Section 80A.586 However, India points 
out that this provision together with the deductions specified in Sections 80C to 80U show that 
"the Income Tax Act, 1961, allows for a range of deductions", and that "the deduction of profits is 
not restricted to the profits earned by enterprises engaged in SEZ / SEZ Development".587 India 
points to several examples of profits that can or could be deducted from taxable income, including 
profits from  certain undertakings in backward areas, profits from exports (which could be deducted 
until, and not after, 2005), profits "derived … from any business of developing a Special Economic 
Zone", and profits from certain undertakings "in any of the North -Eastern States" (which could be 
deducted between 2007 and 2017).588 
7.393.   The Appellate Body has urged panels assessing allegations of revenue foregone "to 
develop an understanding of the tax structure and principles that best explains that Member 's tax 
regime , and to  provide a reasoned basis for identifying [the benchmark]".589 We therefore review 
the legislation relied upon by both parties to develop an understanding of the "tax structure and 
principles" that are relevant to India's tax treatment of income, and in part icular of income from 
export sales.  
7.394.   First, in reviewing the provisions allowing for tax deductions and enumerated in Section 
80A, we note that, for a time, taxpayers resident in India could deduct a certain proportion of 
profits from export sales, but that  no such deduction is "allowed in respect of the assessment year 
beginning on the 1st day of April, 2005 and any subsequent assessment year".590  
7.395.   Second, we note that, as pointed out by India, Sections 80C to 80U allow a "range"591 of 
other deductions of profi ts from taxable income, including for example profits from certain 
undertakings in backward areas, from the business of developing an SEZ and, until 2017, from 
certain undertakings in the North -Eastern States. We do not, however, see these deductions as 
coalescing into some general rule according to which the deduction is the rule.592 Rather, India 
appears to have selected a range of disparate situations in which it allows, indefinitely or for a 
finite period of time, the deduction of profits from taxable inc ome, all the while maintaining its 
 
584 Income Tax Act, 1961, Section 80A , (Exhibit USA -30) (fn omitted) , cited in United States' first 
written submission, para.  110; and United States' responses to Panel questions No. 63, paras. 89-90 and 
No. 67, para.  93. 
585 United States' responses to Panel questions No. 63, para. 90 and No. 67, para. 93.  
586 As a general matter, India's position is that, because the SEZ Scheme is not export contingent, India 
need not address the arguments going to  the existence of a subsidy. (India's first written submission, 
para. 329; second written submission, paras. 187 -189; and comment on the United States' response to Panel 
question No. 67).  
587 India's comments to the United States' response to Panel question No. 63.  
588 Income Tax Act, 1961, Sections 80HH, 80HHC, 80IAB, and 80IE , referred to in India's comments to 
the United States' response to Panel question No. 63. Instrument No. 26 in Communication dated 
22 January  2019 from the Panel to the parties concernin g the Panel's terms of reference, the applicability of 
Article 4 of the SCM  Agreement and the statement of available evidence  (Annex  D-2), annex A; 
Exhibits  USA-84 and IND -23. 
589 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 813. See para. 7.303  above.  
590 Income Tax Act, Section 80HHC , referred to in India's comments on the United States' response to 
Panel question No. 63. Instrumen t No. 26 in Communication dated 22 January 2019 from the Panel to the 
parties concerning the Panel's terms of reference, the applicability of Article 4 of the SCM  Agreement and the 
statement of available evidence  (Annex  D-2), annex A; Exhibits USA -84 and IND-23. 
591 India's comments on the United States' response to Panel question No. 63.  
592 Compare Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 815 ("we note that  a 
domestic tax system may be so replete with exceptions that the rate ap plicable to the general category of  
income in fact no longer represents the 'general rule ' but, rather, the 'exception '").  WT/DS541/R  
 
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  entitlement, outside those situations specifically provided for, to treat profits as part of taxable 
income.  
7.396.   Third, in examining the "tax structure and principles" as evidenced in the Income Tax Act, 
we note that where a "Central Act" provides that income tax will be charged, it must be "charged 
… in accordance with … the provisions … of" the Income Tax Act, "in respect of the total income of 
the previous year of every person".593 For that purpose, the Income Tax Act defines  the "scope of 
total income". It provides that, subject to the provisions of the Income Tax Act, the "total income" 
of residents includes "all income from whatever source derived which (a) is received … in India by 
or on behalf of such a person; or (b) acc rues or arises … to him in India …; or (c) accrues or arises 
to him outside India …".594 
7.397.   Taken together, these provisions of the Income Tax Act therefore outline a system in which 
the definition of income is broad and encompasses profits from export sales, w hile at the same 
time India has chosen, in a range of disparate situations, to allow certain deductions from profits, 
including, to this day, the deduction of profits from export sales of SEZ Units.  
7.398.   Our review of the relevant provisions therefore confirms  to us the inference drawn by the 
United States from Section 80A, i.e. that the benchmark treatment of income is that the income is 
included  in (and not deducted from) the taxable income, and it confirms to us that this inference is 
also specifically valid  for income from export sales by undertakings which, like SEZ Units, are 
situated in India.  
7.399.   We therefore conclude that the benchmark for comparison is that "profits and gains" from 
the export of goods are included  in the taxable income of the undertakings to whom those profits 
and gains accrue.  
7.7.4.3.3   Third step: Comparison of  the applicable treatment with the benchmark  
7.400.   As a third step, we compare the tax treatment identified under the first step in the analysis 
with the benchmark treatment identified in the secon d step in the analysis.  
7.401.   As set out above, the SEZ Act, modifying in relevant part the Income Tax Act, provides 
that SEZ entrepreneurs may deduct from the taxable income of their SEZ Unit 100% of profits and 
gains from the export of goods during the first five years after the Unit has started "to 
manufacture or produce" such goods, and 50% of such profits for a further five years.595 
By contrast, such income from export sales would otherwise be included in the taxable income 
under the Income Tax Act.596 
7.402.   We have found that the promotion of exports is a key reason for the different tax 
treatment afforded under the SEZ Scheme, and we have also noted India's contention that other 
reasons for the Scheme include the generation of additional economic activity, inve stment, and 
employment, and the maintenance of India's sovereignty.597 None of these reasons explains the 
different tax treatment otherwise than as the foregoing of revenue otherwise due, and therefore, 
like for the other prongs of the SEZ  Scheme, considerat ion of the objective reasons behind the tax 
treatment does not detract from our finding that India is foregoing revenue otherwise due.  
7.403.   We therefore conclude that, by allowing SEZ entrepreneurs to deduct all or half of profits 
and gains from exports from th e taxable income of SEZ Units during two consecutive periods of 
five years, India foregoes the revenue otherwise due to it in the form of tax on that income, and 
 
593 Income Tax Act, Section 4 . Instrument No. 26 in Communication dated 22 January 2019 from the 
Panel to the parties concerning the P anel's terms of reference, the applicability of Article 4 of the 
SCM Agreement and the statement of available evidence  (Annex  D-2), annex A; Exhibits USA -84 and IND -23. 
594 Income Tax Act, Section 5 . Instrument No. 26 in Communication dated 22 January 2019 f rom the 
Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the 
SCM Agreement and the statement of available evidence  (Annex  D-2), annex A; Exhibits USA -84 and IND -23. 
595 See paras. 7.383 -7.385  above.  
596 See paras. 7.390 -7.399  above.  
597 See paras. 7.350 -7.353  above.  WT/DS541/R  
 
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  thus provides a financial contribution within the meaning of Article 1.1(a)(1)(ii) of the 
SCM Agreement . 
7.7.5   Whether India foregoes revenue otherwise due under the Duty -Free Imports for 
Exporters Scheme  
7.404.   The United  States argues that DFIS exempts importers  from the payment of customs 
duties that would otherwise be due on the import ation of particular goods in the absence of the 
measure598, up to the value of that participant's duty -free entitlement under DFIS .599 According to 
the United  States, comparably situated enterprises  importing the same products must pay customs 
duties according to India 's national tariff schedule. The United  States refers to the Indian customs 
legislation to show that , under DFIS, enterprises receive an exemption from the payment of 
customs duties that comparably situated enterprises  in India must pay.600 The United  States  
contends that therefore DFIS provides exemptions from customs duty which constitute revenue 
foregone  within the meaning of Article  1.1(a)(1)(ii).601 
7.405.   According to India, the customs duty exemption falls within the scope of footnote  1 and  
Annex  I(i), and ther efore the appropriate comparison is not between comparably situated 
enterprises, but rather between  duties accrued and duties from which DFIS participants  are 
exempted.602  
7.406.   In paragraph  7.310  above, however, we have already rejected India's argument in this 
regard. To recall, we have found that, among the nine Conditions/duty stipulations comprising 
DFIS, Conditions 36, 60(ii), and 61, in their entirety, and Conditions 1 0 and 21, for one and six 
items respectively, fall outside the scope of footnote 1.603 It is therefore for these Conditions/duty 
stipulations that we examine whether India is providing a financial contribution by foregoing 
revenue that is otherwise due.  
7.7.5.1   First step: Applicable treatment  
7.407.   As a first step, we identify the challenged tax treatment. The pairings of Conditions and 
duty stipulations at issue are set out in Notification No. 50/2017 . This provides, in relevant part:  
In exercise of the powers conferred by sub -section (1) of section 25 of the Customs 
Act, 1962 … and sub -section (12) of section 3, of Customs Tariff Act, 1975 … the 
Central Government, on being satisfied that it is necessary in the public interest so to 
do, hereby exempts the goods [identifi ed in Customs Notification No. 50/2017 ] when 
imported into India, - 
(a) from so much of the duty of customs leviable thereon under the said First 
Schedule [of the 1975 Customs Tariff Act ] as is in excess of the amount calculated at 
the standard rate specified in the corresponding entry in column (4) of the said Table ; 
… 
subject to any of the conditions, specified in the Annexure to this notification[.]604 
7.408.   For the Line Numbers at issue,  Notification No. 50/2017  indicates "Nil" as the "Standard 
rate" of c ustoms duties.605 Thus, under Notification  No. 50/2017, participating enterprises are 
exempt  from import duties subject to meeting the relevant Conditions.  
 
598 United  States'  first written submission, paras.  152-156. 
599 United  States'  first written submission, para.  154. 
600 United  States'  first written s ubmission, para. 155; response to Panel question No. 84, paras. 143  
and 144. 
601 United  States'  first written submission, para.  156; second written submission, para. 169.  
602 India's first written submission, para. 391 and 392; second written submission, para.  203 (referring 
to Appellate  Body Report, EU – PET (Pakistan) , para.  5.79); responses to Panel question s No. 35, p. 23-28, 
No. 36, p. 28 -31 and No. 83, p. 61; and comments on the United States' responses t o Panel question No.  84, 
p. 25. 
603 See para. 7.267  above.  
604 Notification No. 50/2017, (Exhibit USA -36), p.  1. WT/DS541/R  
 
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  7.409.   Before turning to the second step in the analysis, we consider the "objective reasons" 
behind this dut y treatment.606 Notification No. 50/2017 does not provide any express statement of 
objectives. However, it ties the value of goods eligible for customs duty exemption to the value of 
past export performance, which indicates that the promotion of export perfo rmance underlies the 
duty treatment at issue, as argued by the United States. India has not identified a different 
objective, and has argued that DFIS was intended as a drawback of customs duties related to 
exported products607, an argument which is consiste nt with the view that the reason behind DFIS 
is the promotion of exports.  
7.7.5.2   Second step: Benchmark for comparison  
7.410.   As a second step, we identify the benchmark for comparison, i.e. the fiscal situations which 
it is legitimate to compare. We recall that the cha llenged tax treatment consists of customs duties 
on the importation of goods. The fiscal situation which it is legitimate to compare, therefore, must 
be identified within India's regime for customs duties on the importation of goods.608  
7.411.   Section 12 of India' s 1962 Customs Act provides that "[e]xcept as otherwise provided … 
duties of customs shall be levied at such rates as may be specified under [the Customs Tariff 
Act, 1975] … on goods importe d into … India" .609 The First Schedule of India's  1975 Customs Tarif f 
Act accordingly sets forth the rat e of import duty for the listed products.  
7.412.   In response to questioning from the Panel, the parties have not identified other elements 
of India's tax rules as forming part of the relevant normative benchmark.610 
7.413.   We also note  that Notification No. 50/2017, itself, refers to the First Schedule of the 
1975 Customs Tariff Act as the norm it departs from.611 
7.414.   Taxpayers exempt from duties on the listed goods under DFIS are importers of those 
goods into India. Taxpayers subject to duti es on the importation of those same goods under the 
1962 Customs Act and 1975 Customs Tariff Act are, equally, importers of the same goods into 
India. Moreover, customs duties are an indirect charge imposed on the goods themselves upon 
their importation or  exportation, rather than a direct tax that would vary, for example, based on 
taxpayers' income. Therefore, for the purpose of an analysis of India's customs duties on the 
importation of capital goods, taxpayers subject to duties under the 1962 and 1975 Ac ts, and 
taxpayers exempt from those duties under DFIS, are comparably situated.  
7.415.   We therefore consider that the customs duty liability and rates set forth in the First 
Schedule of the 1975 Customs Tariff Act 1975, in accordance with the 1962 Customs Act, ar e the 
appropriate benchmark for comparison.612 
7.7.5.3   Third step: Comparison of the applicable treatment with the benchmark  
7.416.   We now turn to comparing the tax treatment identified under the first step in the analysis 
with the benchmark treatment identified in the sec ond step in the analysis.  
7.417.   As seen above, the First Schedule of the 1975 Customs Tariff Act sets forth the rates of 
customs duty that, pursuant to the 1962 Customs Act, apply to goods imported into India. By 
contrast, for the Line Numbers at issue, DFIS re duce those duty rates to zero for participating 
enterprises (until they reach the ceiling placed on their duty -free entitlement under DFIS).  
 
605 Notification No. 50/2017, (Ex hibit U SA-36), table, colu mn (4).  
606 See p ara. 7.306  above.  
607 India's first written submission, paras. 388-390. 
608 See e.g. Panel Report, US – Tax Incentives , para. 7.118.  
609 Customs Act (1962) as amended , Section 12 to Section 15, ( Exhibit USA -8). 
610 United States' response to Panel question No.  84, para. 144 ; India's response to Panel question 
No. 83, p. 61. 
611 Notification No. 50/2017, (Exhibit USA -36), p.  1. 
612 See also fn  512 above.  WT/DS541/R  
 
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  7.418.   Our review of the limited evidence and arguments regarding the reasons for this difference 
in tax treatment613 has di sclosed nothing that would detract from our finding that India is 
foregoing revenue otherwise due.  
7.419.   We therefore conclude that, through the duty stipulations that correspond to 
Conditions  10, 21, 36, 60(ii), and 61, India foregoes revenue otherwise due within the meaning of 
Article  1.1(a)(1)(ii), and thus provides a financial contribution.  
7.8  Direct transfer of funds under Article 1.1(a)(1)(i)  
7.420.   This section assesses the United States' contention that the provision of scrips under MEIS 
is a direct transfer of  funds by India, and thus a financial contribution, within the meaning of 
Article  1.1(a)(1)(i).614  
7.421.   India responds that MEIS scrips are merely a mechanism to remit indirect taxes already 
paid. According to India, therefore, they are not a direct transfer of funds but an exemption or 
remission consistent with footnote  1 read together with Annexes  I(g), I(h), or I(i).615 However, we 
have already found that MEIS does not meet the conditions of footnote 1 read together with 
Annexes  I(g), I(h), and I(i).616 
7.422.   Further, I ndia argues that the United States has not shown that MEIS scrips "can be 
equated to or are similar to the examples" of direct transfer of funds in Article 1.1(a)(1)(i), namely 
"grants, loans, and equity infusions".617 
7.423.   Below, we recall the legal standard app licable to direct transfers of funds pursuant to 
Article  1.1(a)(1)(i) and then examine whether the provision of MEIS scrips is a direct transfer of 
funds.618  
7.8.1   The applicable legal standard under Article 1.1(a)(1)(i)  
7.424.   Article  1.1(a) of the SCM Agreement  provides, in relevant part:  
1.1 For the purpose of this  Agreement, a subsidy shall be deemed to exist if:  
(a)(1) there is a financial contribution by a government or any public body within the 
territory of a Member (refe rred to in this  Agreement as "government"), i.e. where:  
(i) a government practice involves a direct transfer of funds (e.g. grants, loans, and 
equity infusion), potential direct transfers of funds or liabilities (e.g. loan 
guarantees)[.]  
7.425.   Thus, a government  practice involving a direct transfer of funds constitutes a financial 
contribution.  
 
613 See para. 7.409  above.  
614 United  States'  first written submission , paras.  56-57. The United States does not exclude that MEIS 
scrips could additionally be characterized as financial contributions in the form of government revenue 
foregone under Article 1.1(a)(1)(ii)  of the SCM  Agreement. (United States' responses to Pan el questions 
No. 54, para. 85 and No. 55, para. 87; comments on India's response to Panel question No.  57, paras. 124 
and 125).  
615 India's first written submission, paras. 231 -236 and 245 -278; second written submission, 
paras.  96-98 and 100-118; opening statement at the meeting of the Panel, paras. 65 -76; responses to Panel 
questions No.  57, No. 60, and No. 62; and comments on the United States' responses to Panel questions 
No. 54 and No.  55. 
616 See para. 7.294  above.  
617 E.g. India's first written submission, para. 251.  
618 The parties do not dispute that the scrips are provided "by a government" within the meaning of 
Article 1.1(a)(1). As will be seen below, scrips are provided by the Government of India in accordance with the 
Foreign Trade Policy, which is an administrativ e instrument adopted by the Government. Therefore, to the 
extent it is established that the provision of scrips is a direct transfer of funds, we are satisfied that this 
financial contribution is "by a government" within the meaning of Article 1.1(a)(1).   WT/DS541/R  
 
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  7.426.   The focus of subparagraph (i), like of the other subparagraphs of Article 1.1(a)(1), is 
"primarily on the action taken by the government or a public body".619 Under the fir st clause of 
this subparagraph, the action is a "direct transfer of funds", where "the term ' funds ' encompasses 
not only 'money ', but also financial resources and other financial claims more generally ".620 The 
phrase  "direct transfer of funds"  within the mea ning of Article  1.1(a)(1)(i)  "therefore captures 
conduct on the part of the government by which money, financial resources, and/or financial 
claims are made available to a recipient".621  
7.427.   Article 1.1(a)(1)(i) also provides examples of a direct transfer of fu nds, namely, "grants, 
loans, and equity infusion": the list is  illustrative, and the examples provide "an indication of the 
type of transactions intended to be covered by the more general reference to 'direct transfer of 
funds'".622  
7.428.   While "the types of fina ncial contributions set out in Article 1.1(a)(1) are [not] the same" , 
the subparagraphs are not mutually exclusive, i.e. it is possible for the same transaction to "fall 
under more than one type of financial contribution" .623 
7.8.2   Whether MEIS involves a direct t ransfer of funds  
7.429.   Pursuant to the Foreign Trade Policy, the Government of India "grant[s] " scrips, under 
MEIS, as a reward for exports.624 Scrips have a value which is the result of multiplying the 
recipient's  FOB value of exports by reward rates that vary by  product exported and country of 
export.625 As we now turn to discussing, a recipient of scrips may either use them to offset certain 
liabilities vis-à-vis the Government of India, or transfer them to third parties for consideration.  
7.430.   First, scrips may be us ed to pay for (a) basic and additional customs duties applying on 
importation under the 1975 Customs Tariff Act (with some exclusions), (b) excise duties on goods 
purchased domestically, and (c) certain other fees and charges owed to the Government, such a s 
charges for failing to fulfil one's export obligations under certain other Government schemes.626  
7.431.   Second, scrips are "freely transferable ".627 There was some factual disagreement between 
the parties as to the meaning of "freely transferable ". The United Sta tes argued this means that 
the scrips can be sold for cash to third party recipients, and provided evidence of online 
marketplaces where such transactions take place.628 India argued that the legislation setting forth 
MEIS "does not state that the scrip can be sold for cash nor does it mandate that the scrip must be 
sold for cash ", regardless of whether "in practice, the scrip(s) are or can be sold for cash ".629 We 
note that the Foreign Trade Policy expressly provides that "Scrips … shall be freely transferable ", a 
point further confirmed by the evidence of marketplaces where scrips are traded for money; India 
failed to rebut this factual evidence. Indeed, India stated that "freely transferable " in the provision 
in question "means that MEIS Scrips can be transfe rred to third parties, for which no further 
permission is required from the government "630, and further stated that the "third party [recipient] 
can use the scrip for any of the Specified Uses listed in Paragraph 3.02 of the Foreign Trade 
 
619 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 613.  
620 Appellate  Body Report s, Japan – DRAMs (Korea) , para. 250; US – Large Civil Aircraft (2nd complaint) , 
para. 614. 
621 Appellate  Body Report, US – Large Civil Aircraft (2nd complaint) , para. 614. 
622 Appellate  Body Report s, US – Large Civil Aircraft (2nd complaint) , para.  615; Japan – DRAMs (Korea) , 
para. 251. 
623 Appellate  Body Reports, Canada – Renewable Energy  / Canada – Feed-in Tariff Program , para.  5.120.  
624 Sections 3.02 (" Duty Credit Scrips shall be granted as rewards under MEIS  …") and 3.04 of the FTP.  
625 Section 3.04 of the FTP  and Public Notice 2/2015 -2020, (Exhibit USA -11), Appendix 3B.  
626 Sections 3.02 and 3.18 of the FTP. See para. 7.161  above. As reflected there, such charges for 
failing to fulfil one's export obligations include the back payment of  customs duties.  
627 Section 3.02 of the FTP.  
628 E.g. United States' second written submission, para.  109 and comment on India's response to Panel 
question No. 56, para. 121 with reference to Scripbazaar, a platform dedicated to "trad[ing] in MEIS & SEIS 
scrips", which advertises: " If you are interested in selling  … Scripbazaar.com will have the physical scrip picked 
up from your address and transfer the money to your account ". (Scripbazaar website (accessed 
9 October  2018), (Exhibit USA -57), p. 2).  
629 E.g. Ind ia's second written submission, para. 110. See also India's responses to Panel questions 
No. 56 and No. 59.  
630 India's response to Panel question No. 56.  WT/DS541/R  
 
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  Policy ".631 We theref ore consider it established, as a matter of fact, that scrips can be sold to third 
party recipients for consideration such as money.  
7.432.   We recall that "direct transfer of funds … captures conduct on the part of the government 
by which money, financial resourc es, and/or financial claims  are made available to a recipient" .632 
We consider that both because scrips can be used to pay for customs duties and other liabilities 
vis-à-vis the Government, and because they can be sold to third party recipients for considera tion, 
they are "financial resources and/or financial claims ", i.e. "funds " within the meaning of 
Article  1.1(a)(1)(i). Therefore, the provision of scrips under MEIS is a direct transfer of funds by 
the Government of India to the initial recipients of the s crips, within the meaning of Article 
1.1(a)(1)(i).  
7.433.   India argues that MEIS scrips in fact are a mechanism to remit indirect taxes already paid, 
falling under footnote 1 of the SCM Agreement . However, we have already found, as a matter of 
fact, that MEIS is  not a mechanism to remit indirect taxes already paid, and, as a matter of law, 
that it does not meet the conditions of footnote 1.633  
7.434.   India also argues that the United States has not established that MEIS scrips "can be 
equated to or are similar to the exa mples" in Article 1.1(a)(1)(i), namely "grants, loans, and 
equity infusions", and therefore has not established that they are direct transfers of funds.634  
7.435.   The examples in Article 1.1(a)(1)(i) are illustrative: they do not exhaust the category of 
"direct tr ansfer of funds".635 At the same time, they provide an indication of the types of 
transactions intended to be covered by it636, and where " there are measures that have sufficient 
characteristics in common with one example in subparagraph (i), this commonality indicates … 
that the measures fall within the concept of 'direct transfer of funds' ".637  
7.436.   While for a measure to be a direct transfer of funds it is not necessary for it to fall among 
the three examples in the first clause of subparagraph (i), we examine, in  light of India's 
contention, the relationship between the MEIS scrips and those three examples. The first example, 
i.e. "grants", consists of transactions in which "money or money's worth is given to a recipient, 
normally without an obligation or expectat ion that anything will be provided to the grantor in 
return"638; in contrast, the other two examples, "loans" and "equity infusion", "are characterized 
by reciprocity".639 We note that, when India grants MEIS scrips, it provides "money's worth … to a 
recipient ". While past exports trigger the granting of scrips, there is no obligation or expectation 
that any form of return will be provided to the Government of India for the scrips. Further, grants 
can be "conditional", as MEIS scrips are.640 Therefore, MEIS scrip s have significant commonalities 
with grants, which further confirms that they do fall within subparagraph (i).  
7.437.   Finally, India suggests that MEIS scrips cannot fall under subparagraph (i) because they 
fall under subparagraph (ii) of Article 1.1(a)(1).641 However, while the two subparagraphs are of 
course context for each other, they are not mutually exclusive.642 Having examined the measure, 
including identifying its "principal characteristics"643, we have found that MEIS scrips fall within 
subparagraph  (i). For this finding to stand, we do not need, in addition, to exclude that aspects of 
the measure may fall under subparagraph (ii).  
 
631 India's response to Panel question No. 59.  
632 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 614. (emphasis added)  
633 See para. 7.294  above.  
634 E.g. India's first written submission, para. 251.  
635 See para. 7.427  above.  
636 See para. 7.427  above.  
637 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 624.  
638 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 616.  
639 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , para. 616.  
640 Appellate Body Report, US – Large Civil Aircraft (2nd complaint) , fn 1292.  
641 E.g. India's first written submission, paras. 253 -258. 
642 See para. 7.428  above.  
643 Appellate Body Reports, Canada – Renewable Energy  / Canada – Feed-in Tariff Program , para.  5.120 . WT/DS541/R  
 
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  7.438.   We therefore confirm our preliminary finding, in paragraph 7.432  above, that by providing 
MEIS scrips India provides a direct transfer of funds within the meaning of Article  1.1(a)(1)(i) of 
the SCM Agreement , and thus provide s a financial contribution . 
7.9  Benefit under Article 1.1(b) of the SCM Agreement  
7.439.   We now turn to examine whether the measures that we have found to be financial 
contributions by the Government of India also confer a "benefit" within the meaning of 
Article  1.1(b ). 
7.9.1   The applicable legal standard under Article 1.1(b)  
7.440.   Under Article 1.1(b) of the SCM Agreement , a financial contribution by a government is a 
"subsidy" if "a benefit is thereby conferred".  
7.441.   A benefit within the meaning of Article 1.1(b) is an "advantage"644 to the recipient of the 
financial contribution.645 That is, there is a benefit for purposes of this provision if "the 'financial 
contribution' makes the recipient 'better off' than it would otherwise have been, absent that 
contribution" .646 
7.442.   In past cases, WTO adjudicators have held that "the marketplace  provides an appropriate 
basis for comparison … because the trade -distorting potential of a 'financial contribution' can be 
identified by determining whether the recipient has received a 'financial contribution' on terms 
more favourable than those available to the recipient on the market".647  
7.443.   Article 14 of the SCM Agreement , which addresses the "Calculation of the Amount of the 
Subsidy", by an investigating authority, "in Terms of the Benefit to the Recipient", pro vides 
context for the interpretation of Article 1.1(b).648 Among other things, Article 14 confirms that the 
focus of the analysis is on the recipient649, and that benefit is assessed by reference to the 
conditions that would exist on the market in the absence of the financial contribution.650  
7.444.   The two types of financial contribution that we have found to be established in the case 
before us are the foregoing of revenue otherwise due, within the meaning of Article 1.1(a)(1)(ii), 
and a direct transfer of funds, wit hin the meaning of Article 1.1(a)(1)(i) of the SCM Agreement . 
We therefore address, in turn, certain peculiar traits of the benefit analysis for these two types of 
financial contribution.  
7.445.   Adjudicators examining cases of revenue foregone have consistently h eld that a finding of 
benefit "readily follows" from a finding that the government is foregoing revenue otherwise due.651 
 
644 Panel Report, Canada – Aircraft , para. 9.112; Appellate Body Report, Canada – Aircraft , para.  153. 
Also e.g. Appellate Body Reports, Canada – Renewable Energy / Canada – Feed-in Tariff Program , para.  5.159; 
Panel Report, US – Tax Incentives , para. 7.159 . 
645 E.g. Appellate Body Reports, Canada – Aircraft , paras. 154 ("the focus … should be on  the recipient 
and not on the granting authority") and 155 -156; Canada – Renewable Energy / Canada – Feed-in Tariff 
Program , para. 5.159; and Panel Report, US – Tax Incentives , para. 7.159.  
646 Appellate Body Report, Canada – Aircraft , para. 157. Also e.g. A ppellate Body Report, EC and certain 
member States – Large Civil Aircraft , para. 5.107; Panel Report, US – Tax Incentives , para. 7.159.  
647 Appellate Body Report, Canada – Aircraft , para. 157. See also e.g. Appellate Body Reports, Canada – 
Renewable Energy / Canada – Feed-in Tariff Program , para. 5.164; EC and certain member States – Large Civil 
Aircraft , para. 5.107; Panel Reports, US – Tax Incentives , para. 7.159; and US – Large C ivil Aircraft 
(2nd complaint) , para. 7.168.  
648 Appellate Body Reports, Canada – Aircraft , para. 155 and 158; Canada – Renewable Energy / 
Canada – Feed-in Tariff Program , para. 5.163  
649 Appellate Body Report, Canada – Aircraft , para. 155.  
650 Appellate Body Rep ort, Canada – Aircraft , para. 158. Article 14 refers, in particular, to "the usual 
investment practice … of private investors in the territory of [the Member concerned]", "a comparable 
commercial loan which the [recipient] could actually obtain on the market", "the amount that the [recipient] 
would pay on a comparable commercial loan", and "prevailing market conditions … in the country of provision 
or purchase".  
651 Panel Reports, EU – PET (Pakistan) , para. 7.36 ("readily foll ows"); Brazil – Taxation , 
paras. 7.491 -7.494; US – Tax Incentives , paras. 7.160 -7.164; US – Large Civil Aircraft (2nd complaint) , 
paras.  7.169 -7.171; US – FSC, para. 7.103; US – FSC (Article 21.5 – EC), para. 8.46; and Canada – Autos , 
 WT/DS541/R  
 
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  The panel in US – Large Civil Aircraft  (2nd complaint)  explained that, in its view, this is because a 
"tax break is essentially a gift f rom the government, or a waiver of obligations due, and it is clear 
that the market does not give such gifts ".652 The panel in US – Tax Incentives  similarly explained 
that " the relief from taxation otherwise due is not generally available to market participa nts, nor 
does it exist as a general condition in the marketplace ".653  
7.446.   As a result, although financial contribution and benefit are "separate legal elements"654, 
the "same factual  elements" may form the basis both of a finding that the government is foregoing 
revenue otherwise due, and of a finding of benefit.655 
7.447.   The second type of financial contribution we have found to be established in this case is a 
direct transfer of funds. Specifically, we have found there to be a direct transfer of funds that 
shares "significant commonalities with grants".656 Similar to revenue foregone, adjudicators have 
repeatedly found that grants, by their nature, confer a benefit to the recipient: "they place the 
recipient in a better position than the recipient otherwise would hav e been in the marketplace"657, 
because no entity acting pursuant to commercial considerations would make such unremunerated 
payments.658  
7.448.   Turning to the measures before us, we will assess, first, whether a benefit is conferred 
through the financial contributio ns taking the form of tax exemptions and deductions; and, second, 
whether a benefit is conferred through the MEIS scrips. Before doing so, we note that for the 
EOU/EHTP/BTP Schemes, EPCG Scheme, DFIS, and MEIS, India argues that the measures at issue 
fall under footnote 1, and therefore cannot be held to confer a benefit within the meaning of 
Article  1 of the SCM Agreement .659 We recall however that, for these schemes, we have proceeded 
to the analysis of the existence of financial contribution and benefit to  the extent that we have 
found that these schemes do not meet the conditions of footnote 1. Therefore, we reject India's 
footnote  1 argument in the context of the benefit analysis.  
7.9.2   Whether the tax exemptions and deductions under the Export Oriented Units a nd 
Sector -Specific  Schemes, Export Promotion Capital Goods  Scheme, Special Economic 
Zones  Scheme, and Duty -Free Imports for Exporters Scheme , confer a benefit  
7.449.   We begin with the financial contributions taking the form of revenue foregone. We have 
found that  the following tax exemptions and deductions are financial contributions in the form of 
revenue foregone : (a) the exemptions from customs duties on importation under the 
EOU/EHTP/BTP Schemes, EPCG Scheme, SEZ Scheme, and DFIS; (b) the exemption from custom s 
duties on exportation under the SEZ Scheme; (c) the exemption from IGST on importation under 
the SEZ  Scheme; and (d) the deductions from taxable income under the SEZ Scheme.  
 
para. 10.165. See also, espousing this position, U nited States' first written submission, para. 43;  
Canada's  response to Panel question No. 11, paras. 21 -22; and Japan's response to Panel question No. 11. 
Indeed, India itself, discussing EU – PET (Pakistan) , notes that the rationale behind it "could be, t hat cases of 
government revenue foregone result in a finding of benefit conferred as well, since there can never be a 
market equivalent of government revenue foregone , such as tax remissions, since the authority to tax is a 
sovereign function of states". ( India's first written submission, para. 287. (emphasis added))  
652 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.170. (emphasis added)  
653 Panel Report, US – Tax Incentives , para. 7.162. (emphasis added)  
654 Appellate Body Report, Brazil – Aircraft, para. 157. (emphasis added)  
655 Panel Report, US – Tax Incentives , para. 7.163 (emphasis added). See also 
European  Union's  third-party response to Panel question No. 11, para. 35. In US – Tax Incentives , the panel 
noted that this is because "the 'mark et conditions' that are relevant as a benchmark in this context are the 
competitive conditions that exist in the absence of the challenged financial contribution". (Panel Report, US – 
Tax Incentives , para. 7.162).  
656 See para. 7.436  above.  
657 Panel Report, US – Upland Cotton , paras.  7.1116 and 7.1118. See also Panel Reports, EC and certain 
member States – Large Civil Aircraft , para. 7.1501; US – Large Civil Aircraft (2nd complaint) , 
paras.  7.1228 -7.1229 and 7.1362.  See also Canada's third -party response to Panel question No. 11, para. 22 
("[i]t is simply a consequence of the nature of the financial contribution which confers a benefit per se "). 
658 Panel Report, US – Large  Civil Aircraft (2nd complaint) , para. 7.1229 . 
659 India's first written submission, paras. 217 (EOU/EHTP/BTP Schemes), 284 (MEIS), 314 
(EPCG  Scheme), and 397 (DFIS); second written submission, paras. 83 (EOU/EHTP/BTP Schemes), 120 -123 
(MEIS), 206 ( DFIS), and 194 (EPCG Scheme); and opening statement at the meeting of the Panel, paras. 58 
(EOU/EHTP/BTP Schemes), 73 (MEIS), 83 (EPCG Scheme), and 112 (DFIS).  WT/DS541/R  
 
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  7.450.   The United  States argues that these exemptions confer a benefit on their recipi ents, 
because recipients do not have to pay the duties and taxes they would otherwise have to pay and, 
therefore, are financially "better off " than in the absence of the financial contribution.660 The 
United  States asserts that in cases of government revenue  foregone, such as these, the benefit 
resides in the very fact that revenue is forgone.661 
7.451.   As others before us, we note that "relief from taxation otherwise due is not generally 
available to market participants, nor does it exist as a general condition in th e marketplace ".662 
Beginning with the exemptions from customs duties on importation, we observe that an importer 
of goods under the EOU/EHTP/BTP Schemes, EPCG Scheme, SEZ Scheme, or DFIS, gets to import 
goods free of customs duties. The market – however defi ned – does not offer this "gift".663 An 
importer of the very same goods outside these or other exemption schemes is subject to customs 
duties. Thus, a  recipient of the customs duty exemption under the EOU/EHTP/BTP Schemes, 
EPCG  Scheme, SEZ Scheme, or DFIS is  "'better off' than it would otherwise have been, absent that 
contribution".664 
7.452.   The same considerations are valid for the other exemptions from duties and indirect taxes 
at issue, namely: the exemption from customs duties on exportation (an exporter of goods  under 
the SEZ Scheme gets to export the goods free of customs duties, but an exporter of the same 
goods outside the SEZ or similar schemes must pay customs duties on exportation); and the 
exemption from IGST on importation (an importer of goods under the SEZ Scheme gets to import 
the goods free of IGST, but importers of the same goods, outside this or similar schemes, must 
pay IGST). Again, the market "does not give such gifts"665, and therefore the recipients of these 
tax exemptions are better off than they  would be on the market in the absence of the financial 
contribution.  
7.453.   Similar considerations are also valid for the deduction from taxable income under the 
SEZ Scheme. To recall, SEZ entrepreneurs are allowed to deduct profits and gains from exports 
from the total income of their Units, to which income tax is applied. By contrast, entities outside 
the SEZ  Scheme have to pay tax on such income. Again, this makes SEZ entrepreneurs and their 
Units better off than they would be in the absence of the financial contribution – i.e. better off than 
if they had to pay tax on their export income.  
7.454.   India argues that this line of reasoning wrongly conflates the notions of financial 
contribution and benefit.666 Relying among others on Canada – Renewable Energy / Canada – 
Feed-in Tariff Program , India emphasizes the need for "an appropriate understanding of 'the 
market' … to determine whether a benefit has been conferred" .667 In particular, with regard to the 
exemptions under the EOU/EHTP/BTP Schemes, EPCG Scheme, and DFIS, India argues that the 
 
660 United  States'  first written submission, paras.  44 (EOU/EHTP/BTP Schemes), 76 (EPCG Scheme), 
118, 120 ( SEZ Scheme), and 159 (DFIS); second written submission, paras. 97 (EOU/EHTP/BTP Schemes), 
131 (EPCG Scheme), 137 (SEZ Scheme), and 174 (DFIS); and opening statement at the meeting of the Panel, 
paras. 11 (EOU/EHTP/BTP Schemes), 21 (EPCG Scheme), 26 (SEZ Sc heme), and 29 (DFIS).  
661 United  States'  first written submission, para.  43 (EOU/EHTP/BTP Schemes), 75 (EPCG Scheme), 
119 (SEZ Scheme), 158 (DFIS); second written submission, paras. 94 (EOU/EHTP/BTP Schemes), 
127 (EPCG  Scheme), and 171 (DFIS).  
662 Panel Report , US – Tax Incentives , para. 7.162.  
663 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.170.  
664 Appellate Body Report, Canada – Aircraft , para. 157.  
665 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.170.  
666 E.g. India's first written submission, para. 135. India makes the same argument for all tax 
exemptions under the EOU/EHTP/BTP Schemes, EPCG Scheme and DFIS. India's first written submission, 
paras.  216 (EOU/EHTP/BTP Schemes), 313 (EPCG Scheme), and 396 (D FIS); second written submission, 
paras.  82 (EOU/EHTP/BTP Schemes), 140 (EPCG Scheme), and 205 (DFIS). For the SEZ Scheme, India argues 
that the measure is not export contingent, and that therefore it need not address the allegations of subsidy. 
India's fir st written submission, para. 329; second written submission, para s. 187 and 189; opening statement 
at the meeting of the Panel , para.  105; and response to Panel question No. 64 . 
667 India's first written submission, para. 136.  WT/DS541/R  
 
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  United States has failed to establish the existence of a benefit because it has not provided "an 
appropriate analysis or definition o f the market".668 
7.455.   However, the fact that a certain type of market analysis is required, for example, to 
ascertain whether a government purchase was made for more than adequate remuneration (as in 
Canada – Renewable Energy / Canada – Feed-in Tariff Program , which India relies on) does not 
mean that the same type of analysis is required in every case. Here, India foregoes revenue from 
certain enterprises, and this is not a gift the market gives.669 
7.456.   India further argues that the relevant market in fact consists of  the "like competitors"670 to 
the recipients of the financial contribution at issue, who would therefore qualify under the relevant 
scheme. These like competitors, if only they applied, would receive the same exemptions, and 
therefore "'participating enterpr ises' are only made 'better off' insofar as they submitted the 
appropriate paperwork".671  
7.457.   India is, in essence, suggesting that the relevant market should be defined as all entities 
potentially qualifying for an alleged subsidy scheme (and, further, that qu alifying entities that fail 
to apply should not be considered). This cannot be the appropriate framework for analysis. As set 
out above, the relevant question is whether "the 'financial contribution' makes the recipient 'better 
off' than it would otherwise  have been, absent that contribution"672, i.e. outside  the alleged 
subsidy scheme. Therefore, India's suggestion that the relevant market consists of those entities 
that could, or do, fall within  the challenged schemes goes against the very notion of a bench mark 
for ascertaining the existence of a benefit, and does not persuade us.  
7.458.   We therefore find that the duty and tax exemptions and deductions at issue confer a 
benefit on their recipients, by making them better off than they would be, in the market, absent  
those exemptions and deductions. And, to recall, we have already found that they are a financial 
contribution by the government.673 Therefore, these duty and tax exemptions and deductions are a 
subsidy within the meaning of Article 1.1 of the SCM Agreement . 
7.9.3   Whether MEIS scrips confer a benefit  
7.459.   The other category of financial contribution we have found to be established in this case is 
a direct transfer of funds, in the form of MEIS scrips.  
7.460.   The United  States argues that, by providing MEIS scrips, India confers a benefit on the 
scrips'  recipients, because recipients can use the scrips to pay for customs duties , central excise 
duties, and other liabilities vis-à-vis the Government, and can also sell the scrips for money .674  
7.461.   We have found that MEIS scrips ar e "money's worth"675, which can be used to pay for a 
number of liabilities vis-à-vis the Government, and can also be sold to third parties for money.676 
Further, we have found that India provides MEIS scrips with no obligation or expectation of any 
form of ret urn.677 
 
668 E.g. India's first written su bmission, para. 218, with reference to the EOU/EHTP/BTP Schemes. To 
recall, India does not address the United States' allegation that the exemptions under the SEZ Scheme confer a 
benefit. See fn 666 above.  
669 We also recall that the challenged schemes exempt from duties or taxes the very same  transactions, 
involving the very same goods, that would be subject to those duties or taxes outside the schemes.  
670 India's first  written submission, para. 399, with reference to DFIS.  
671 India's first written submission, para. 400, with reference to DFIS. Also India's first written 
submission, paras. 218 -219 (EOU/EHTP/BTP Schemes); second written submission, paras. 84 
(EOU/EHTP/BTP  Schemes), 142 (EPCG Scheme), and 207 (DFIS).  
672 Appellate Body Report, Canada – Aircraft , para. 157.  
673 See section 7.7 above.  
674 United  States'  first written submission, para.  59; second written submission, para. 111; and op ening 
statement at the meeting of the Panel, para. 17.  
675 See p ara. 7.436  above.  
676 See p aras. 7.430 -7.431  above.  
677 See p ara. 7.436  above.  WT/DS541/R  
 
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  7.462.   Like others before us, we are of the view that "no private entity acting pursuant to 
commercial considerations" would provide money's worth "to another commercial entity" for no 
remuneration.678  
7.463.   Therefore, the provision by India of money's worth in th e form of MEIS scrips makes 
recipients better off than they would otherwise be, absent that financial contribution, on the 
market.  
7.464.   Similar to its arguments on the tax exemptions discussed above, India argues that the 
United  States failed to identify the re levant market, and thus failed to discharge its burden to 
prove benefit.679 India relies, again, on the Appellate Body Reports in Canada – Renewable 
Energy  / Canada  – Feed-in Tariff .680 
7.465.   However, we reiterate that the fact that some subsidy cases require an elaborate definition 
of the relevant market does not mean that all do. For some types of financial contribution, an 
elaborate analysis and definition of the relevant market is crucial. By way of  example, this may be 
the case of financial contributions consisting of the provision or purchase of goods (where it is 
necessary to assess the adequacy of remuneration), or of loans (where it is necessary to ascertain 
the amount the recipient would pay on a comparable  commercial loan that it could obtain on the 
market).   
7.466.   In contrast to these two examples, under MEIS, India provides recipients with scrips that 
have a monetary value, with no obligation or expectation that recipients will provide any form of 
return. As we  have noted, the market does not make such gifts, whichever way the market 
boundaries are drawn.  
7.467.   India also argues that the United  States failed to substantiate that MEIS "as such" confers 
a benefit.681 India submits that, to this end, the United  States must  demonstrate that 
MEIS requires  the conferral of a benefit.682 Since the applicable legal instruments do not " specif [y] 
that the recipient of a scrip must utilize the MEIS Scri p", and instead they " merely give [] the 
MEIS Scrip recipient an option to utilize the scrips  … the law does not require conferral of any 
alleged benefit ".683 
7.468.   We disagree with India. MEIS scrips have a monetary value and, on receiving them, their 
recipients are made better off than they would have been on the market, where no such gifts ar e 
made. That the applicable legal instruments do not oblige recipients to realize  that monetary value 
does not mean that, by providing MEIS scrips, India does not confer a benefit on their recipients.  
7.469.   Finally, India argues that the United States failed to establish that MEIS as such confers a 
benefit because, if the recipient fails to provide the necessary documents upon request, it must 
refund the value of the scrips, with interest.684 However, that the competent authority can reclaim 
the value of the scrips  if recipients are unable to prove their entitlement to them does nothing to 
contradict the conclusion that the provision of MEIS scrips confers a benefit.  
7.470.   We therefore find that MEIS scrips confer a benefit on their recipients, by making them 
better off t han they would have been, in the market, absent such an unremunerated direct 
transfer of funds. Thus, we find that because MEIS scrips are a financial contribution by the 
government685 and confer a benefit on their recipient, they are a subsidy within the me aning of 
Article 1.1 of the SCM Agreement . 
 
678 Panel Report, US – Large Civil Aircraft (2nd complaint) , para. 7.1229.  
679 India's  first written submission, paras.  285-287. 
680 India's first written submission, para. 286.  
681 India's  first written submission, paras.  288-291; second written submission, para.  122. 
682 India's  first written submission, paras.  288-291; second written submission, para. 122.  
683 India's  first written submission, para.  290. 
684 India's first written submis sion, para. 290. Also ibid. para. 291, with regard to transfer of the scrips 
to third parties.  
685 See section 7.8 above.  WT/DS541/R  
 
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  7.10  Export contingency under Articles 3.1(a) and 3.2 of the SCM Agreement  
7.471.   We now address the United  States'  argument that the subsidies provided under the five 
challenged schemes are export contingent within the meani ng of Article 3.1(a) of the 
SCM Agreement , and that, therefore, by providing these subsidies India is acting inconsistently 
with Articles 3.1(a) and 3.2 of the SCM Agreement . 
7.472.   We begin by setting out the applicable legal standard. We then examine, in turn, whether 
the challenged subsidies under each of the five schemes are export contingent and therefore 
inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . 
7.10.1   The applica ble legal standard under Articles 3.1(a) and 3.2  
7.473.   Article 3.1 of the SCM Agreement  provides, in relevant part:  
… the following subsidies, within the meaning of Article 1, shall be prohibited:  
(a) subsidies contingent, in law or in fact,4 whether solely or a s one of several other 
conditions, upon export performance, including those illustrated in Annex I;  
… 
 
4 This standard is met when the facts demonstrate that the granting of a subsidy, without having 
been made legally contingent  upon export performance, is  in fact tied to actual or anticipated 
exportation or export earnings. The mere fact that a subsidy  is granted to enterprises which 
export shall not for that reason alone be considered to be an export subsidy within the meaning  
of this provision.  
 
7.474.   Article 3.1(a) thus prohibits subsidies "contingent … upon export performance". The 
ordinary meaning "of 'contingent' is 'conditional' or 'dependent for its existence on something 
else'".686 That is, for a subsidy to be export contingent, "the grant of the s ubsidy must be 
conditional or dependent upon export performance".687  
7.475.   Article 3.1(a) clarifies that whether export performance is the sole condition, or one of 
several conditions for granting the subsidy, there is export contingency for purposes of that 
provision. Moreover, when a certain subsidy is available on condition of export performance, the 
fact that the same subsidy can also be obtained under a different set of circumstances, which may 
or may not involve export contingency, does not prevent a finding  that the subsidy is export 
contingent.688 
7.476.   Article 3.1(a) further provides that prohibited export contingent subsidies "includ[e] those 
illustrated in Annex I"  to the SCM Agreement . The subsidies illustrated in items (b) to (l) of 
Annex  I share the common fe ature "that the subsidy gives certain advantages to exported 
products and favours exported products over products destined for domestic consumption" .689 
 
686 Appellate Body Report, Canada – Aircraft , para. 166.  
687 Appellate Body Report, US – FSC (Article 21.5  – EC), para. 111.  
Further, "the relevant question … is not whether the eligibility requirements under a subsidy may result  
in" exportation, but whether there is "a condition requiring " exportation. (Appellate Body Report, US – Tax 
Incentives , paras. 5.18 and 5.40 (emphasis original)). These statements were made in the context of 
Article  3.1(b), which prohibits subsidies that are "contingent … upon the use of domestic over imported good s". 
However, the "legal standard for establishing the existence of 'contingency' under Article 3.1(b) is the same as 
under Article 3.1(a) of the SCM  Agreement". (Appellate Body Reports, Brazil – Taxation , para. 5.241).  
688 Appellate Body Report, US – FSC (Ar ticle 21.5  – EC), para. 119. See also European 
Union's  third-party submission, para. 29 (referring to Appellate Body Report, US – Upland Cotton , 
paras.  579-580).  
689 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1053.  WT/DS541/R  
 
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  7.477.   Article 3.1(a) prohibits both subsidies that are export contingent in law and subsidies that 
are export c ontingent in fact. The difference between the two resides in the evidence establishing 
the existence of export contingency.690  
7.478.   Export contingency in law is demonstrated on the basis of the very words of the legal 
instrument constituting the measure , either because the measure expressly conditions the 
granting of the subsidy on export performance, or because it does so implicitly, by necessary 
implication from the words used in the measure.691  
7.479.   For example, in Canada – Autos , the challenged legal instruments di d not say, in so many 
words, that a manufacturer's exemption from customs duties on the import of motor vehicles was 
conditioned on export performance. However, the necessary implication of the words used in those 
legal instruments was that they "operate[d ], as a matter of law, in such a manner that the more 
motor vehicles a manufacturer export[ed], the more motor vehicles that manufacturer [was] 
entitled to import duty -free".692 The panel and Appellate Body therefore found that the subsidy 
was contingent in law upon export performance.  
7.480.   Conversely, "[t]here is no single legal document which will demonstrate, on its face," 
export contingency in fact.693 Therefore, "the existence of this relationship of contingency … must 
be inferred  from the total configuration  of the facts constituting and surrounding the granting of 
the subsidy, none of which on its own is likely to be decisive in any given case" .694 And "what facts 
should be taken into account in a particular case will depend on the circumstances of that case" .695 
While "there can be no general rule as to what … kinds of facts must be taken into account"696, 
relevant facts may include "the design and structure of the measure granting the subsidy", "the 
modalities of operation set out in such a measure", and "the relev ant factual circumstances 
surrounding the granting of the subsidy".697 
7.481.   While t he "legal standard expressed by the word 'contingent' is the same for both de jure  
or de facto  contingency"698, the different evidentiary basis is reflected in the way the analysis is 
conducted. For determining contingency in fact, "the Uruguay Round negotiators provided a 
standard, in footnote 4 of the SCM Agreement "699, which "requires proof of three different 
substantive elements: first, the 'granting of a subsidy'"700; second, "tied to"; and, third, "actual or 
anticipated exportation or export earnings".701 This standard shares commonalities with the 
analysis of export contingency in law, but also differences, such a s the enquiry into "actual or 
anticipated exportation".  
7.482.   As will be seen below, we find that all the subsidies in question are export contingent in 
law, and we therefore do not examine the United States' alternative argument that the subsidies 
provided unde r the SEZ Scheme are export contingent in fact. As a result, we do not elaborate 
further, here, on the specificities of the analysis of export contingency in fact.  
 
690 Appellate Body Report, Canada – Aircraft , para. 167. 
691 Appellate Body Report, Canada – Autos , para. 100. See also Appellate Body Report, Canada  – 
Aircraft , para. 167 ("[ d]e jure export contingency is demonstrated on the basis of the words of the relevant 
legislation, regulation or other legal instrument.").  
692 Appellate Body Report , Canada  – Autos , para . 106. 
693 Appellate Body Report, Canada – Aircraft , para. 167.  
694 Appellate Body Report, Canada – Aircraft , para. 167. (emphasis original ) 
695 Appellate Body Report, Canada – Aircraft , para. 168.  
696 Appellate Body Report, Canada – Aircraft , para. 169.  
697 Appellate Body Report, EC and certain member States – Large Civil Aircraft , para. 1046.  
698 Appellate Body Report, Canada – Aircraft , para. 167. Se e also Appellate Body Report, Canada  – 
Autos , para. 107. Further, in the context of contingency under Article 3.1(b), the Appellate Body has noted that 
"the analysis of de jure  and de facto  contingency … [is] a continuum", and a panel "need not 
compartmentalize" the two analyses. (Appellate Body Report, US – Tax Incentives , para. 5.13).  
699 Appellate Body Report, Canada – Aircraft , para. 168. At the same time, because the standard for 
continge ncy in law and in fact are the same, except for the evidence  supporting the finding of contingency, 
some of the considerations derived from the analysis of footnote 4 can also be extended, with the necessary 
adaptations, to export contingency in law. See A ppellate Body Report, Canada – Autos , para. 107. This applies 
in particular to the analysis of "tied to".  
700 Appellate Body Report, Canada – Aircraft , para. 169.  
701 Appellate Body Report, Canada – Aircraft , para. 169. See also Appellate Body Report, EC and c ertain 
member States – Large Civil Aircraft , paras. 1043 -1044.  WT/DS541/R  
 
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  7.483.   Turning to Article 3.2 of the SCM Agreement , this provides:  
A Member shall neither grant no r maintain subsidies referred to in paragraph 1.  
7.484.   As a result, when a Member grants or maintains a subsidy that is export contingent under 
Article 3.1(a) of the SCM Agreement , that Member also violates Article 3.2 of the 
SCM Agreement .702 
7.485.   Having set out the r elevant legal standard, we now turn to applying it to the subsidies at 
issue in this dispute.  
7.10.2   Whether the subsidies granted under the Export Oriented Units and 
Sector -Specific Schemes  are export contingent  
7.486.   The United States argues that the exemption from customs duties under the 
EOU/EHTP/BTP Schemes is export contingent in law.703 According to the United States, this is 
because "India conditions the availability" to participating Units of the customs duty exemption 
under the scheme "upon the [Units'] promise  of agreeing to export their entire production and 
obtaining and maintaining of a positive NFE".704 This is "evidenced throughout government 
documents"705, including in the provision for penal action if a Unit fails to maintain a positive 
NFE.706 
7.487.   The United Stat es argues that, like in Canada – Autos , the customs duty exemption 
available under the challenged scheme is "simply not available to a manufacturer unless it 
exports"707, and this is apparent from "the 'words of the relevant legislation, regulation, or other  
legal instrument'".708  
7.488.    India disagrees and argues that the United States has not established the export 
contingency of the challenged measures.709 According to India, the EOU/EHTP/BTP Schemes are 
"an administrative system that seeks to boost the manufacturi ng capabilities of [the] domestic 
industry"710, and are remission schemes falling under footnote 1 and the Annexes of the 
SCM Agreement .711 Regarding the NFE requirement, India argues that it is not indicative of export 
contingency but ensures that Units act w ith commercial prudence and without operating at a 
loss.712 And as for the United States' reliance on Canada – Autos , India argues that the factual 
pattern in the present dispute differs from that at issue in Canada – Autos .713  
7.489.   We turn to assess whether the United States has established the measures' export 
contingency, in light of the legal standard outlined above.  
7.490.   The challenged exemption from customs duties under the EOU/EHTP/BTP Scheme s are 
exclusively available to Units set up under the schem es.714 To be "set up under" the 
EOU/EHTP/BTP Schemes, Units must " undertak [e] to export their entire production of goods and 
 
702 See, e.g. Panel Reports, Canada – Aircraft , para. 9.231; US – FSC (Article 21.5  – EC), 
paras.  8.109 -8.110.  
703 United States' first written submission, paras. 44 -46; second written submission, paras. 98 -101; and 
opening statement at the meeting of the Panel, para. 14.  
704 United States' first written submission, para. 46.  
705 United States' first written submission, para. 46.  
706 United States' first written submission, para. 46 (referring to Section 6.05 of the FTP).  
707 United States' first written submission, para. 45 (quoting Appellate Body Report, Canada – Autos , 
para. 104).  
708 United States' first written submission, para. 45 ( quoting Appellate Body Report, Canada – Aircraft , 
para. 167).  
709 India's first written submission, paras. 221 -226; second written submission, paras. 86 -93; and 
opening statement at the meeting of the Panel, paras. 59 -62. 
710 India's first written submission, para. 222.  
711 India's first written submission, para. 222; secon d written submission, para. 90.  
712 India's first written submission, paras. 223 -225; second written submission, paras. 91 -92; and 
opening statement at the meeting of the Panel, para. 61.  
713 India's second written submission, paras. 86 -89. 
714 See paras. 7.314 -7.315  above.  WT/DS541/R  
 
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  services (except permissible sales in the DTA) ".715 In addition, the schemes require participating 
Units to maintain a positive NFE.716 The HBP defines the NFE as follows:  
6.10 Net Foreign Exchange (NFE) Earnings  
(a) EOU / EHTP / STP / BTP unit shall be a positive net foreign exchange earner. 
NFE earnings shall be calculated cumulatively in the block period as per Paragraph 
6.04 of FTP, acc ording to the formula given below. Items of manufacture for export 
specified in LoP / LoI alone shall be taken into account for calculation of NFE.  
Positive NFE = A – B> 0 
Where  
'NFE' is Net Foreign Exchange;  
'A' is FOB value of exports by EOU / EHTP / STP / BTP unit;  
'B' is sum total of CIF value of all imported inputs and CIF value of all imported capital 
goods, and value of all payments made in foreign exchange by way of commission, 
royalty, fees, dividends, interest on external borrowings / high sea sales during first 
five year period or any other charges. It will also include payment made in Indian 
Rupees on high sea sales.  
"Inputs " mean raw materials, intermediates, components, consumables, parts and 
packing materials.717 
7.491.   Thus, to achieve a positive NFE under these schemes, a Unit must export more than it 
imports. Further, the schemes set forth provisions to monitor compliance with the NFE 
requirement, and envisage sanctions, including possible penal action , for a unit's failure to comply 
with the req uirement. For example, the standard format for the letter of permission provides that 
an approved Unit "would be required to achieve positive … NFE … failing which it would be liable 
for penal action" .718  
7.492.   Thus, "on the basis of the very words of the relevan t legislation, regulation or other legal 
instrument"719 setting forth the measure , the subsidies provided under the scheme are only 
available to Units (a) that undertake to export their entire production, with limited exceptions, and 
(b) that undertake to ex port more than they import, with provision for sanctions in case this 
undertaking is not met. Therefore, on the face of the legal instruments in which the measure is 
reflected, the availability of the subsidy is "dependent for its existence"720 on exportatio n, within 
the meaning of Article 3.1(a).  
7.493.   India argues that the schemes, and the NFE requirement, have other objectives, different 
from export performance. It argues that the schemes "seek[] to boost the manufacturing 
capabilities of the domestic industry"  and streamline the process of exemption or remission of 
duties721, and that the NFE requirement aims to ensure that enterprises act prudently, do not 
operate at a loss, and do not import more inputs than needed.722  
 
715 Section 6.00(a) of the FTP .  
716 While disputing the purpose of  the NFE, India does not dispute the existence or definition of the 
requirement in the context of the EOU/EHTP/BTP Schemes.  
717 Section 6.10 of the HBP.  
718 Appendices and Aayat Niryat forms, (Exhibit USA -6), appendix 6D , para. (ii). Similarly, the FTP 
provide s that failure to maintain a positive NFE may render the Unit liable to penal action and lead to 
cancellation of the letter of permission or of intent. (Subsection 6.05(c) of the FTP).  
719 Appellate Body Report, Canada – Autos , para. 100. 
720 Appellate Body Re port, Canada – Aircraft , para. 166.  
721 India's first written submission, para. 222.  
722 India's first written submission, paras. 193 and 223 -225. The United States points out that 
India's  argument that the positive NFE requirement is a tool to protect the participating enterprises is 
 WT/DS541/R  
 
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  7.494.   We note that India's arguments appear to be  somewhat contradictory. India argues, on the 
one hand, that the schemes are meant to "boost the manufacturing capabilities of the domestic 
industry"723 but, on the other hand, that they do not seek to ensure a certain level of exports and 
instead seek to en sure that participating Units do not import more inputs than needed.724 For a 
scheme under which participating Units "undertake to export their entire production"725, it is hard 
to see how one could "boost" manufacturing capabilities without boosting exports.  
7.495.   In any event, however, the relevant enquiry is whether the subsidies in question are 
"contingent …, whether solely or as one of several other conditions, upon export performance" .726 
When a subsidy is indeed contingent upon export performance, the fact that there may be other 
rationales behind the scheme, or even other conditions on the grant of the subsidy, does not 
change the conclusion that the subsidy is prohibited under Article 3.1(a).  
7.496.   India has also highlighted certain factual differences between the measure  challenged in 
Canada – Autos , where the adjudicators found the measures to be export contingent, and the 
measures before this panel.727 Specifically, India observes that, in Canada – Autos : the duty 
exemption applied to the importation of motor vehicle s, not inputs; the duty -exempt goods and 
the goods that had to be exported were the same "class of goods" (motor vehicles); the amount  of 
the exemption depended on the amount exported; and the measure operated on the basis of a 
ratio requirement.728 However, none of the differences highlighted by India goes to the legal 
standard for export contingency. It does not matter per se  that the du ty-exempt goods and the 
mechanism conditioning the subsidy on export contingency are not the same in this case and in 
Canada – Autos : what matters is that the measures before us lay down requirements which do 
condition the subsidy on export performance.   
7.497.   Finally, India argues that the measures meet the conditions of footnote 1. We recall, 
however, that we are examining the export contingency of the challenged measures because we 
have found that they do not meet the conditions of footnote 1.729 
7.498.   We therefore fi nd that the challenged subsidies under the EOU/EHTP/BTP Schemes are 
contingent in law upon export performance, and therefore prohibited by Article 3.1(a) of the 
SCM Agreement . Moreover, since through the legal instruments discussed above India grants or 
maintains such subsidies, India is also acting inconsistently with Article 3.2 of the SCM Agreement . 
7.10.3   Whether the subsidies granted under the Export Promotion Capital Goods 
Scheme are export contingent  
7.499.   To recall, under the EPCG Scheme, India provides a subsid y in the form of an exemption 
from customs duties on the importation of capital goods.  
7.500.   The United States argues that the duty exemption under the EPCG Scheme is contingent in 
law upon export performance.730 According to the United States, the scheme requires  participating 
exporters to fulfil two cumulative export obligations and even incentivizes their early fulfilment.731 
Non-compliance with these obligations results in duty liability and sanctions.732 
 
contradicted by the provision for penal action as a sancti on for failing to meet the requirement. 
(United  States'  second written submission, paras. 100 -101).  
723 India's first written submission, para. 222.  
724 India's first written submission, paras. 224 -225. 
725 Section 6.00(a) of the FTP.  
726 Article 3.1(a) of the SCM  Agreement.  
727 India's second written submission, paras. 86 -89. 
728 India's second written submission, para. 89.  
729 See para. 7.236  above . 
730 United States' first written submission, paras. 77 -78; second written submission, para. 132; and 
opening statement at the meeting of the Panel, para. 23.  
731 United States' first written submission, para. 78; opening statement  at the meeting of the Panel, 
para. 23.  
732 United States' firs t written submission, para. 78; opening statement  at the meeting of the Panel, 
para. 23.  WT/DS541/R  
 
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  7.501.   India does not respond to the United States' arguments on ex port contingency and 
contends that the United States has not established the existence of a subsidy under Article 1 of 
the SCM Agreement .733 Rather, in India's view, the scheme falls under footnote 1 and thus does 
not qualify as a subsidy within the meaning of Article 1.734 
7.502.   With reference to the duty -exempt importation of capital goods under the EPCG Scheme, 
the Foreign Trade Policy provides that:  
Import under EPCG Scheme shall be subject to an export obligation equivalent to 
6 times of duties, taxes and cess s aved on capital goods, to be fulfilled in 6 years 
reckoned from date of issue of Authorisation.735 
7.503.   The Foreign Trade Policy further specifies that:  
[The export obligation] shall be fulfilled by the authorisation holder through export of 
goods which are manuf actured by him or his supporting manufacturer … for which the 
EPCG authorisation has been granted.736 
7.504.   Thus, over a six -year period, a s cheme  participant must achieve exports of the goods 
specified in the EPCG authorization equalling at least six times the du ties, taxes, and cess737 saved 
on capital goods under the scheme.738 
7.505.   The HBP requires the authorisation holder to fulfil half of this export obligation within the 
first four years739, failing which the "holder shall … pay duties of customs … proportionate to dut y 
saved amount on total unfulfilled [export obligation ] block" .740 
7.506.   In addition to this six -year export obligation, participants in the scheme must also fulfil an 
"average" export obligation. That is, subject to certain limited exceptions741, a scheme  participa nt 
must maintain exports of the goods specified in the EPCG authorization  above the average level of 
export of the same or similar products during the three -year period preceding the EPCG 
authorization.742 
7.507.   Thus, the very words of the FTP and HBP, which provi de for the EPCG Scheme, condition 
the availability of the subsidy on the fulfilment of obligations to export. This in itself is sufficient to 
make the subsidies at issue export contingent in law, within the meaning of Article 3.1(a) of the 
SCM Agreement .  
7.508.   Moreover, other aspects of the EPCG Scheme, as they also emerge from the words of the 
legal instruments that regulate it, further confirm the scheme's characterization as export 
contingent.  
7.509.   For example, the scheme provides an "incentive for early … fulfilm ent" of the export 
obligation: a portion of the export obligation can be "condoned" when "75% or more of [ the] 
specific export obligation and 100% of Average Export Obligation till date" have been met in half 
or less the required period.743  
 
733 India's first written submission, paras. 317 -319; second written submission, paras. 144 -145; see 
also opening statement at the meeting of the Panel, paras . 83-84. 
734 India's opening statement at the meeting of the Panel, para. 84.  
735 Section 5.01(c) of the FTP. 
736 Section 5.04(a) of the FTP.  
737 See fn 221 above . 
738 Section 5.01(c) of the FTP; Section 5.14(a) of the HBP.  
739 Section 5.14(a) of the HBP.  
740 Section 5.14(c) of the HBP.  
741 Section 5.13 of the HBP.  
742 Section 5.04(b) of the FTP; Section 5.12 of the HBP; and India's  responses to Panel questions 
Nos. 51 and 52.  
743 Section 5.09 of the FTP.  WT/DS541/R  
 
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  7.510.   Further, applica nts for EPCG authorisation must provide, as part of their application, a 
certification by a chartered engineer of the "nexus" between the capital goods to be imported and 
the manufacture of products for export744, certifying that the capital goods in questio n are 
"required" to manufacture specified "export product(s)".745  
7.511.   In sum, "the very words of the relevant legislation, regulation or other legal instrument"746 
show that the EPCG Scheme conditions the availability of the subsidy on export performance, in 
violation of Article 3.1(a) of the SCM Agreement . Those words even emphasize further the 
centrality of the export performance conditions by setting forth incent ives for the early fulfilment 
of those conditions, sanctions for failure to fulfil them, and additional requirements to certify the 
nexus between the goods benefiting from duty -free treatment and the manufacture of goods for 
export.  
7.512.   We therefore find that the exemption from customs duties for the importation of capital 
goods under the EPCG Scheme is contingent in law upon export performance, and therefore 
prohibited by Article 3.1(a) of the SCM Agreement . Moreover, since through the legal instruments 
discus sed above India grants or maintains such subsidy, India is also acting inconsistently with 
Article 3.2 of the SCM Agreement . 
7.10.4   Whether the subsidies granted under the Special Economic Zones Scheme are 
export contingent  
7.513.   The United States argues that the chal lenged subsidies under the SEZ Scheme are 
contingent on export performance, in law or in fact.747 In particular, first, to qualify as SEZ Units, 
applicants must undertake to meet a positive NFE requirement, and this requirement is then 
subject to monitoring and "penal action" in case of non -compliance.748 Second, SEZ Units are 
required to "export the goods manufactured".749 Third, one of the subsidies, i.e. the deduction 
from total income for purposes of corporate income tax, is reserved to "export" income.750 In 
addition, in the context of its argument that the subsidies under the SEZ Scheme are also export 
contingent in fact, the United States relies on the preamble of the SEZ Act, the description of the 
functions of the competent agencies in the SEZ Act, and publ ic statements of government officials, 
all to the effect that the purpose of the SEZ Scheme is the promotion of exports.751 
7.514.   India disagrees with the United States and argues that the SEZ Scheme is not 
export -contingent, in law or fact.752 According to India, t he United States has mischaracterized the 
obligation to achieve a positive NFE, because SEZ Units can fulfil that requirement through 
domestic transactions, without making any export sales.753 Moreover, India disagrees with how the 
United  States has portraye d, and relied upon, the application, approval and monitoring process for 
SEZ Units.754 Further, India submits that the United States failed to apply the correct legal test for 
de jure  contingency.755 With regard to de facto  contingency, India argues in particu lar that the 
 
744 Section 5.03(a) of the HBP.  
745 Appendices and Aayat N iryat Forms,  (Exhibit USA -6), appendix 5A ("Format of Chartered Engineer 
Certificate for Nexus under EPCG Scheme").  
746 Appellate Body Report, Canada – Autos , para. 100. 
747 United States' first written submission, paras. 121 -138; second written submission, paras. 138 -161; 
and opening statement at the meeting of the Panel, para. 27. See also response to Panel question No. 78, 
para. 124. 
748 United States' first written submission, pa ras. 123 -126; second written submission, paras. 144 -150. 
749 United States' first written submission, para. 124.  
750 United States' first written submission, para. 137; response to Panel question No. 77, para.  122. 
751 United States' first written submission, pa ras. 128 -138; second written submission, paras. 152 -161; 
and opening statement at the meeting of the Panel, para. 27. See also response to Panel question No. 77, 
paras. 122 -123. 
752 India's first written submission, paras. 330 -380; second written submission,  paras. 161 -189; 
opening statement at the meeting of the Panel, paras. 94 -105. 
753 India's first written submission, paras. 344 -351; second written submission, paras. 168 -173 and 
183; opening statement at the meeting of the Panel, paras. 97 -99 and 104; and c omments on the 
United  States' responses to Panel questions Nos.  69, and 70 -73. 
754 India's first written submission, paras. 337, 338, 342, 343, 351, and 352 -355; second written 
submission, paras. 166, 167 and 174.  
755 India's first written submission, paras. 339 -341. WT/DS541/R  
 
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  United  States erred in giving probative value to statements of government officials756 and in 
relying on the same type of evidence relied upon to prove de jure  contingency.757 
7.515.   We begin by examining the United States' contention that the SEZ Scheme  is contingent in 
law upon export performance.  
7.516.   We recall that, under the SEZ Scheme, India provides subsidies in the form of (a) an 
exemption from customs duties on imports and exports, (b) an exemption from IGST, and (c) a 
deduction from the taxable base for corporate income tax.  
7.517.   The exemption from customs duties is provided to "every Developer and … entrepreneur" 
for imports into, or exports from, "a Special Economic Zone or a Unit".758 The exemption from 
IGST applies to "all goods … imported by a unit or a  developer in the Special Economic Zone".759 
And the deduction from the taxable base for corporate income tax applies "in computing the total 
income of an assessee, being an entrepreneur … from his Unit".760 
7.518.   Thus, the three sets of exemptions are available (a)  to Units, (b) for imports into or 
exports from Units, or (c) for income from Units; but on the face of the measure, the customs duty 
and IGST exemptions appear to be also available (d) to entrepreneurs and developers for imports 
into, or exports from, the  Special Economic Zone more generally, i.e. outside the context of 
Units.761  
7.519.   We recall that an entrepreneur is a person who has been authorized to set up a Unit, and a 
developer is a person who has been authorized to set up a Special Economic Zone.762 India h as 
explained that, in SEZs, the manufacturing of goods (and rendering of services) takes place in 
Units, and the activities of an entrepreneur are limited to setting up such Units and then 
manufacturing goods (and rendering services) within the Unit763; wher eas a developer, in addition 
to setting up an SEZ, also "develop[s] and maintain[s] the necessary infrastructure", and would 
"benefit from the exemptions or deductions available under the SEZ scheme to the extent such 
activities are for the development or maintenance of SEZ infrastructure".764 Thus, while some 
economic activity covered by the SEZ Scheme takes place outside the context of Units, the bulk of 
the economic activity within an SEZ is carried out through the Units, leading India to say that "[i]n 
general, the economic activities in a Special Economic Zone under the SEZ Scheme are undertaken 
through a 'Unit'".765 
7.520.   The United States has clarified that it challenges only subsidies under the SEZ Scheme that 
apply to Units.766  
7.521.   The SEZ Scheme imposes condition s on the very existence of Units, prominent among 
which is a requirement to "achieve Positive Net Foreign Exchange". Rule 53 of the SEZ Rules 
provides:  
Net Foreign Exchange Earnings – The Unit shall achieve Positive Net Foreign Exchange  
to be calculated cu mulatively for a period of five years from the commencement of 
production according to the following formula, namely: - 
 
756 India's first written submission, para. 371; opening statement at the meeting of the Panel, 
para. 103. 
757 India's first written submission, paras. 331 and 375 -376. 
758 Section 26(1) of the SEZ Act.  
759 Notification No. 15/2017, (Exhibit USA -27). 
760 Second Schedule of the SEZ Act.  
761 In contrast, the deduction from the taxable base for corporate income tax is limited to income 
"from  [a] Unit". (para. 7.517  above).  
762 See paras. 7.147  and 7.148  above.  
763 India's responses to panel questions Nos. 74 -75, p. 58.  
764 India's response to Panel  question No. 75, p. 58.  
765 India's response to panel question No. 74, p. 58.  
766 United States' response to Panel question No. 74, para. 119. As set out in the opening part of 
para. 7.518 , the connection to a Unit can reside in one of the following: the subsidy is provided to the Unit; the 
subsidy is provided for imports into and exports from the Unit; or the subsidy is provided as a deduction in 
calculating income from the Unit.  WT/DS541/R  
 
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  Positive Net Foreign Exchange = A - B >> 0  
Where: - 
 A: is Free on Board value of exports … against freely convertible currency, by 
the Un it and the value of … supplies of their products [falling under items A(a) to A(k) 
of Section 53].  
… 
 B: consists of sum of the following:  
(a) sum total of the Cost Insurance and Freight value of all imported inputs 
used for authorised operations … and … o f all imported capital goods …;  
(b) value of goods obtained from other Unit or [EOU/EHTP/BTP] Unit or from 
bonded warehouses or … from international exhibitions held in India or precious 
metals …  
(c) the Cost Insurance Freight value of the goods and servic es … imported duty 
free or leased … or received [in specified circumstances].767 
7.522.   Thus, Section 53 requires  a Unit ("The Unit shall…") to achieve a " Positive  Net Foreign 
Exchange", defined by the formula "A – B >> 0". Since A – B must be greater than 0, the first 
item, i.e. "A", must be greater than 0. A comprises several components. The first is the FOB value 
of exports by the Unit.768 Therefore, one condition triggering the subsidies to Units is export 
performance: exports greater than 0.  
7.523.   In addition to achieving Positive NFE by exporting goods, the SEZ Rules also set forth 
other "supplies" by the Units that can be counted in computing "A" .769 These other suppli es 
include, for example, the supply of capital goods to holders of a licence under the EPCG 
Scheme770, the supply of goods to nuclear power projects meeting the conditions in the FTP771, the 
export of services, the rendering of services within the DTA against free foreign exchange772, and 
the supply of goods to other entities within the same SEZ or to other SEZs or EOU/EHTP/BTPs.773  
 
767 Rule 53 of the SEZ  Rules, (Exhibit USA -28, as amended by Exhibits USA -60 and IND -22). 
(underlining added)  
768 India points out, and the United States agrees, that Section 2(m) of the SEZ Act defines exports as 
including not only the "taking of goods … outside India", but also as the export of services, and the sale of 
goods or services to other Units or developer s within the same SEZ or to other SEZs. E.g. India's response to 
Panel question No. 69; United States' response to Panel question No. 69. We note, however, that these same 
"additional" items are also included in the subparagraphs of Section 53A, discussed in paras.  7.523 -7.524 . We 
therefore consider that the discus sion of Section 2(m) is subsumed in the discussion of the subparagraphs of 
Section 53A.  
769 There have been amendments to the list of these "supplies", which is set forth in Rule 53 of the SEZ 
Rules: the 2006 SEZ Rules listed items (a) to  (o); this list was then substantially amended in 2018 to set forth 
a revised list consisting of items (a) to (k) (Exhibit USA -60); further amendments introduced in 2019 made 
minor modifications to the existing list of items (a) to (k) (Exhibit IND -22). See also India's respo nses to Panel 
questions No. 65 and 68. These amendments however do not have a material effect on our findings: the 
parties agree that, before and after the amendments, the majority of the additional "supplies" listed in the 
subparagraphs of item A are sale s to the DTA, but see para. 7.524  below. See India's responses to Panel 
questions Nos. 70 and 72; United  States'  responses to Panel questions Nos. 70 and 71.  
770 2019 A mendment to the SEZ Rules, (Exhibit IND -22), Rule 7, amending Rule 53A(b)  of the 
SEZ Rules . 
771 2019 Amendment to the SEZ Rules, (Exhibit IND -22), Rule 7, amending  Rule 53A(f)  of the 
SEZ Rules . 
772 2019 Amendment to the SEZ Rules, (Exhibit IND -22), Rule 7, ame nding  Rule 53A(h)  of the 
SEZ Rules . 
773 2019 Amendment to the SEZ Rules,  (Exhibit IND -22), Rule 7, amending  Rule 53A(j)  of the 
SEZ Rules . WT/DS541/R  
 
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  7.524.   The United States describes these as "a narrowly defined list of exceptions in the form of 
encouraged domestic sales"774, and we agree with this description. More importantly, however, 
when a subsidy is available on condition of export performance, the fact that the same subsidy can 
also be obtained under a different set of circumstances, not involving export contingency, does not 
prevent  a finding that the subsidy is export contingent.775 Therefore, because achieving a positive 
NFE means that "A" must be greater than 0, and one component of A is exports of goods, exports 
of goods are a condition for purposes of Article 3.1(a).  
7.525.   Other element s of the legal instruments setting out the SEZ Scheme reiterate the NFE 
requirement. For example, Rule 18(2)(i) of the SEZ Rules provides that proposals to set up an SEZ 
Unit shall be approved if, among other requirements, "the proposal meets … the positiv e net 
foreign exchange earning requirement as provided in rule 53".  
7.526.   Rule 19 of the SEZ Rules provides that upon approval of a Unit, the Development 
Commissioner "shall issue a Letter of Approval in Form G, for setting up of the Unit" . The text of 
Form G, which is part of the SEZ Rules, includes the following language:  
The approval is subject to the following terms and conditions:  
(i) You shall expor t the goods manufactured / … imported / … procured for 
trading and services … as per the provisions of the Special Economic Zones Act, 
2005, and Rules made thereunder for a period of five years from the date of 
commencement of production/service activities.  For this purpose, you shall 
execute the Bond -cum-Legal Undertaking as prescribed under the Special 
Economic Zones Rules, 2006.  
… 
(iii) You shall achieve positive Net Foreign Exchange (NFE)  as prescribed in the 
Special Economic Zones Rules, 2006 … failing which you shall be liable for penal 
action  under the Foreign Trade (Development and Regulation) Act, 1992.  
… 
(xii) You shall confirm acceptance of the above terms and conditions … within 
forty-five days of issue of this Letter of Approval.  
(xiii) If you fa il to comply with the conditions stipulated above, this Letter of 
Approval shall be cancelled  as per the provisions of the Special Economic Zones 
Act, 2005 and the rules and orders made thereunder.  
(underlining added)  
7.527.   Thus, first, the text of Form G, which  is part of the SEZ Rules and which must be accepted 
by an entrepreneur whose proposal to set up a Unit has been approved, further confirms the 
 
774 United States' response to P anel question No. 69, para. 106.  
775 Para. 7.475  above; Appellate Body Reports, US – FSC (Article 21.5) , para. 119; and US – Upland 
Cotton , paras. 579 -580. See also European Union's third -party submission, para. 29, noting that the 
Appellate  Body in US – Upland Cotton  rejected the argument made by the United States in that case that, since 
Step 2 payments were available to both exporters and domestic users, and the conditions applying to the latter 
had not been found to involve export conting ency, the payments were not export contingent. The 
Appellate  Body explained that the fact that the subsidies granted in a second set of circumstances might not be 
export contingent did not dissolve the export contingency arising in the first set of circums tances.  
Relying on Canada – Autos , India argues instead that the test for export contingency in law is a "but 
for" test , i.e. the subsidies must be unavailable but for export performance. (India's first written submission, 
paras.  339-341). However, the te xt relied upon by India is part of the Appellate Body's description of the 
measure before it, and  not the Appellate Body's articulation of the test for export contingency. T he text of 
Article  3.1(a) itself makes it clear that export performance can be "one  of several … conditions".  WT/DS541/R  
 
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  requirement to achieve positive NFE, and envisages "penal action" for failing to achieve positive 
NFE.776  
7.528.   Second,  Form G also provides that the entrepreneur who is thus being authorized to set up 
the Unit "shall export … as per the provisions of the Special Economic Zones Act, 2005", for five 
years. As the United States pointed out, the definition of "export" in the SEZ Act, as it applies to 
SEZ Units for trade in goods, only includes "taking goods … out of India" and supplying goods to 
other SEZ Units or developers.777 Thus, this too, amounts to a requirement for all approved Units 
to "export", further reinforcing the export contingency of the subsidies provided to Units under the 
SEZ Scheme.  
7.529.   Third, Form G requires its recipient to execute the prescribed "bond -cum-legal 
undertaking", which is also part of the SEZ Rules and is set out in Form H. Form H, to be 
undertaken by the SEZ  Unit "unto the President of India", reiterates that the Letter of Approval 
"contain[s] terms and conditions for setting up and operating the unit … including the requirement 
of achieving positive Net Foreign Exchange Earning"778, and further reads : 
We, the obligors shall achieve positive Net Foreign Exchange Earning and shall fulfil 
other conditions stipulated in the Letter of Approval and in case of failure to achieve 
the said positive Net Foreign Exchange Earnings, … we shall be liable for penal action 
under the provisions of the Foreign Trade (Development and Regulation) Act, 1992.779 
7.530.   Therefore, the applicable legal instruments provide, and reiterate, that SEZ Units must 
meet a positive NFE requirement, and at least one way in which this requiremen t is met is by 
exporting. Further, we recall that the challenged subsidies are provided to Units. Therefore, the 
challenged subsidies under the SEZ Scheme are contingent in law upon export performance within 
the meaning of Article 3.1(a).  
7.531.   Moreover, the Let ter of Approval also provides that the SEZ Unit will "export" and, again, 
one of the ways in which this requirement is met is by exporting goods out of India.780 For this 
reason too, the challenged subsidies under the SEZ Scheme are contingent in law upon ex port 
performance within the meaning of Article 3.1(a).  
7.532.   In addition, as regards the third type of subsidy that we have found to be provided under 
the SEZ Scheme, i.e. the deduction from the taxable base for corporate income tax, the relevant 
provisions expr essly provide for the deduction, "in computing the total income of … an 
entrepreneur … from his Unit", of "profits and gains derived from … export ".781 That is, export is, 
again, a condition for the grant of the subsidy. For this reason, too782, this deduction  from taxable 
income is contingent in law upon export performance within the meaning of Article 3.1(a).   
7.533.   We therefore find that the challenged subsidies under the SEZ Scheme, namely, (a) the 
exemption from customs duties on imports into, and exports from, Units, (b) the exemption from 
IGST on imports into Units, and (c) the deduction of export profits from the income of Units for 
purposes of corporate income tax, are contingent in law upon export performance, and therefore 
prohibited by Article 3.1(a) of th e SCM Agreement . Further, because India grants or maintains 
such subsidies, it also acts inconsistently with Article 3.2 of the SCM Agreement . 
7.534.   The United States also argued that the challenged subsidies under the SEZ Scheme are 
contingent in fact upon expo rt performance. We have found that they are contingent in law upon 
 
776 Form G, para. (iii) of the SEZ Rules.  
777 Section 2(m) of the SEZ Act. See also fn 768 above.  
778 Form H, p. 1  of the SEZ Rules.  
779 Form H, para. 8  of the SEZ Rules . 
780 See fn 768 above.  
781 Income Tax Act, 1961, Sections 10A and 10AA , (Exhibit USA -29). (emphasis added)  
782 In addition to the fact that the very existence of Units is contingent upon export performance, as 
discussed in the previous paragraphs with reference to all the challenged subsidies under the SEZ Scheme.  WT/DS541/R  
 
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  export performance, and we therefore do not proceed to examine whether they are contingent in 
fact upon export performance.783  
7.10.5   Whether the subsidies granted under the Duty -Free Imports for E xporters 
Scheme are export contingent  
7.535.   To recall, we have found that the exemptions from customs duties under Conditions 10, 
21784, 36, 60(ii), and 61 of DFIS constitute a subsidy.  
7.536.   The United States argues that the DFIS exemptions from customs duties are contingent in 
law upon export performance.785 According to the United States, under DFIS, participating 
exporters must have made exports in the previous year to obtain the exemptions, and the value of 
these past exports determines the amount of the duty -free entitlement.786 
7.537.   India mostly787 does not respond to the United States' arguments on export contingency 
and contends that the United States has not established the existence of a subsidy under Article 1 
of the SCM Agreement .788 Rather, in India's view, DFIS fall s under footnote 1 and thus does not 
qualify as a subsidy within the meaning of Article 1.789 However, we recall that we are examining 
Conditions  10, 21, 36, 60(ii), and 61 of DFIS to the extent that we have found them not to fall 
under footnote  1.790 
7.538.   Each of the duty exemptions at issue is subject to a "Condition" under the legal instrument 
setting forth the measure, i.e. Notification No. 50/2017. In each case, the Condition includes a 
requirement that the total value of the goods imported under the exemption not exceed a certain 
percentage of the FOB value of exports of the specified product in the preceding year, ranging 
from 1% to 25%.791  
7.539.   Thus, first, on the face of the measure itself, the exemption is not available without 
exportation: as the United States p uts it, "[t]o receive the import duty exemption, an enterprise 
must have made exports in the past year" .792 Second, again on the face of the measure itself, the 
extent of the exemption (i.e. the total value of the goods that can be imported under the 
exempti on) depends on the value of exports of the specified products during the previous year. 
That is, like in Canada – Autos , the more the subsidy recipient exports, the more it is entitled to 
import under the duty exemption.793  
7.540.   In both these ways, the import du ty exemptions under DFIS are contingent upon export 
performance, as established on the basis of the very words of the legal instrument that provides 
for DFIS. In other words, they are contingent in law upon export performance.  
7.541.   India argues that insofar as the goods imported free of duty "are … for research and 
development purposes … the duty exemption is not export contingent".794 This argument applies to 
Condition 61, which requires, among others, that the goods be "imported for Research and 
 
783 See also United States' response to Panel question No.  78 ("if the Panel agrees … that the 
SEZ scheme is de jure  contingent upon export performance, the Panel need not conduct a de facto  analysis").  
784 For one and six items, respectively. See among others paras. 7.255 , 7.256 , 7.267 , and 7.406  above.  
785 United States' first written submission, paras. 160 -161; second written submission, para. 175; 
opening statement at the meeting of the Panel, para. 30.  
786 United States' first written submission, para. 161; opening statement at the meeting of the Panel, 
para. 30.  
787 See para. 7.541  below.  
788 India's first written submission, paras. 402 -404; second written submission, paras. 209 -210; and 
opening statement at the meeting of the Panel, paras. 113 -114. 
789 India's opening state ment at the meeting of the Panel, para. 113.  
790 See para. 7.267  above.  
791 Notification No. 50/2017, (Exhibit USA -36). See also Communication dated 22 January 2019 from 
the Panel to the parties concerning the Panel's terms of reference, the applicability of Article 4 of the 
SCM Agreement , and the statement of available evidence, (Annex D -2), paras.  2.104 -2.107.  
792 United States' first written submission, para. 161.  
793 Appellate Body Report, Canada – Autos , para. 106.  
794 India's response to Panel question No. 80.  WT/DS541/R  
 
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  Development purp ose".795 However, as we have just found, Condition 61 both requires past 
exports as a condition of the import duty exemption, and ties the extent of the duty -free 
entitlement to the value of those past exports.796 That the goods imported with the benefit of th is 
duty-free entitlement are to be used for research and development does not make the duty 
exemption any less export contingent.   
7.542.   We therefore find that the exemptions from customs duties under Conditions 10, 21797, 36, 
60(ii), and 61 of DFIS  are subsidies that are contingent in law upon export performance, and 
therefore prohibited by Article 3.1(a) of the SCM Agreement . Moreover, since India grants or 
maintains such subsidies, India is also acting inconsistently wit h Article 3.2 of the SCM Agreement . 
7.10.6   Whether the subsidies granted under the Merchandise Exports from India 
Scheme are export contingent  
7.543.   To recall, under MEIS, India provides a subsidy in the form of MEIS scrips.  
7.544.   The United States argues that MEIS scrips a re contingent upon export performance.798 
Specifically, citing the Foreign Trade Policy, the United States argues that under MEIS, a " program 
participant receives scrips conditioned and tied to the value it exports, where the exports are sold, 
and of what pr oduct ".799 According to the United States, "[f]rom approval to award to monitoring, 
the amount of scrips hinges on export performance".800  
7.545.   India does not respond to the United States' arguments on export contingency and submits 
that the question of export con tingency is moot because MEIS falls under footnote 1 and 
Annexes  I(g) and I(h).801  
7.546.   The Foreign Trade Policy provides that MEIS scrips "shall be granted as rewards under 
MEIS".802 The set of conditions giving rise to "entitlement under MEIS" is described in Se ction 3.04 
of the Foreign Trade Policy.803 This provision reads:  
3.04 Entitlement under MEIS  
Exports of notified goods/products with ITC[HS] code, to notified markets as listed in 
Appendix 3B, shall be rewarded under MEIS. Appendix 3B also lists the rate(s) of 
rewards on various notified products [ITC (HS) code wise]. The basis of calculation of 
reward would be on realised FOB value of exports in free foreign exchange, or on FOB 
value of exports as given in the Shipping Bills in freely convertible foreign cur rencies, 
whichever is less, unless otherwise specified.  
7.547.   Thus, the condition giving rise to "entitlement under MEIS" is the " export  of notified 
goods/products … to notified markets"; the "basis of calculation of reward" is the "FOB value of 
exports "; and the "rate" of entitlement depends on the product exported and the country it is 
exported to, as further specified in Appendix 3B.804 
 
795 The argument was also applicable to Condition 60(i). However, the United States has clarified that its 
challenge does not extend to this Condition. See fn 266 above. 
796 In the case of Condition 61, the requirement is worded as follows: "If, … (b) the total value of goods 
imported does not exceed one % of the FOB value of exports made during the preceding financial year…". 
(Notification No. 50/2017 (Exhibit USA -36), p. 68).  
797 For one and six items, respectively. See among others paras. 7.255 , 7.256 , 7.267 , and 7.406  above.  
798 United States' first written submission, paras. 60 -61; second written submission,  para. 114; and 
opening statement at the meeting of the Panel, para. 18.  
799 United States' first written submission, para. 61.  
800 United States' first written submission, para. 61. See also United States' second written submission, 
para. 114. 
801 India's first  written submission, paras. 292 -295; second written submission, para. 124; and opening 
statement at the meeting of the Panel, para. 76 . 
802 Section 3.02  of the FTP. 
803 See also United States' first written submission, paras. 51 -52 and 61.  
804 Section 3.04  of the FTP. (emphasis added)  WT/DS541/R  
 
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  7.548.   Appendix 3B, in turn, sets out a "list of Countries and ITC (HS) code wise list of products 
with reward rates under the Merchandise Exports from India Scheme (MEIS)".805 Appendix  3B 
groups export destination countries into three "country groups".806 Appendix 3B  then lists, over 
332 pages, the "MEIS - Reward Rate" for each covered product; specifically, for each covered 
product, it lists three rates, the choice between the three being determined by the country to 
which the exports giving rise to the reward were ma de.807  
7.549.   India has not rebutted any of this evidence of export contingency. Instead, India argues 
that MEIS falls under footnote 1 of the SCM Agreement , and that every measure falling under 
footnote  1, by definition, requires the export of products.808 We note that while it is correct that 
every measure falling under footnote 1 requires the export of products, we are undertaking the 
analysis of export contingency because we have found that MEIS does not  fall under footnote 1.809  
7.550.   Therefore, we find that "on the ba sis of the very words of the relevant legislation, 
regulation or other legal instrument"810, the fact of exporting is both the triggering condition for 
the award of MEIS duty credit scrips, and the basis on which the value of the scrips is calculated. 
As set  out above, under the legal instruments regulating MEIS, that value is based on (a) the 
FOB value of exports of the recipient of the scrips, and (b) a rate determined by the type of goods 
exported and the destination country. That is, MEIS scrips are expor t contingent in law.  
7.551.   We therefore find that the provision of duty credit scrips under MEIS is contingent in law 
upon export performance, and therefore prohibited by Article 3.1(a) of the SCM Agreement . 
Moreover, since through the legal instruments discusse d above India grants or maintains such 
subsidies, India is also acting inconsistently with Article 3.2 of the SCM Agreement . 
7.11  The Panel's duty under Article 12.11 of the DSU  
Article 12.11 of the DSU requires that panels, in cases in which "one or more of th e parties 
is a developing country Member",  
explicitly indicate the form in which account has been taken of relevant provisions on 
differential and more -favourable treatment for developing country Members that form 
part of the covered agreements which have been raised by the developing country 
Member in the course of the dispute settlement procedures.  
The "relevant provisions on differential and more -favourable treatment … raised by" India 
in this dispute are Article 12.10 of the DSU and Article 27 of the SCM Agreement . 
We begin with Article 12.10 of the DSU . Pursuant to this provision, "in examining a 
complaint against a developing country Member, the panel shall accord sufficient time for the 
developing country Member to prepare and present its argumentatio n". 
In these Panel proceedings, we took account of India's status as a developing country 
Member, under Article 12.10, in adopting and reviewing the Working Procedures and timetable. 
Although established under the fast -track procedures contemplated in Arti cle 4 of the 
SCM Agreement , we allowed four weeks for India to prepare its first written submission following 
the United States' first written submission, and four weeks for India to prepare its second written 
submission following the United States' second  written submission. The Panel's timetable also 
 
805 Public Notice 2/2015 -2020, (Exhibit USA -11), cover page.  
806 Public Notice 2/2015 -2020, (Exhibit USA -11), Appendix 3B,  table 1.  
807 Public Notice 2/2015 -2020,  (Exhibit USA -11), Appendix 3B, table  2. The United States also points out 
that "India controls how the product exported and the destination market for that product determine the rate 
of receiving scrips", and in particular "reserves the right" to modify the goods or destination markets giving 
rise to rewards, and to modify t he rates of reward. (United States' first written submission, para. 54;  
Section  3.13 of the FTP). Further, the United States also refers to a number of statements of Indian 
government agencies to the effect that MEIS seeks to promote the export of goods co vered by the scheme. 
(United  States'  first written submission, para. 50).  
808 India's first written submission, paras. 292-294. 
809 See para. 7.294  above.  
810 Appellate Bod y Report, Canada  – Autos , para. 100.  WT/DS541/R  
 
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  provided for more than two months between the filing of submissions and the substantive meeting 
with the parties.  
In addition, after the substantive meeting with the parties, India requested us to double 
the time for responding to our questions. In light of Article 12.10 of the DSU, we acceded to that 
request for all but two of our questions.  
We also considered India's developing country Member status and the requirements of 
Article 12.10 when reconciling co mpeting considerations in our decision to hold a single 
substantive meeting, although we ultimately did not accede to India's request that we not limit 
ourselves to a single meeting.811 
We now turn to Article 27 of the SCM Agreement . The question whether the  special and 
differential treatment provisions of Article  27 of the SCM Agreement  exclude India from the scope 
of application of Articles 3 and 4 of the SCM Agreement  has been a key issue in this dispute.  
India argued, and the United States disputed, that  Article  27.2(b) of the SCM Agreement  
exempted India from the prohibition of export subsidies set forth in Article 3.1(a) and, by virtue of 
Article 27.7, from the applicability of Article 4. In resolving this dispute, we were therefore called 
upon to inter pret the meaning of the special and differential treatment provision of Article  27.2(b) 
of the SCM Agreement . In doing so, we also took into account other relevant special and 
differential treatment provisions included in Article 27 and Annex VII of the SCM Agreement . Our 
analysis in section 7.3 of this Report reflects our consideration of the relevant provisions on special 
and differential treatment.  
India also reque sted us to rule at preliminary stage that, as a result of Article 27 of the 
SCM Agreement , the procedures of Article 4 of the SCM Agreement  were not applicable to this 
dispute. We therefore considered India's request at preliminary stage. At the same time,  India also 
requested us not to rule at preliminary stage on the parties' interpretive disagreement on Article 
27 itself, and to do so instead through the full panel proceedings, because India considered this to 
be "a legal issue that goes to the essence o f the dispute".812 We explained, in a communication to 
the parties at preliminary stage, that we could not rule on India's preliminary request on the 
applicability of Article 4 of the SCM Agreement  without resolving the parties' interpretive 
disagreement und er Article 27.813 
8  CONCLUSIONS  
8.1.  For the reasons set out in this Report, we conclude that:  
a. the exemptions from customs duties on importation under the EOU/EHTP/BTP Schemes 
are subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 
3.2 of the SCM Agreement ; 
b. the exemptions from customs duties on importation under the E PCG Scheme are 
subsidies contingent upon export performance, inconsistent with Articles 3.1(a) and 3.2 
of the SCM Agreement ; 
c. the exemptions from customs duties on importation and exportation, the exemption 
from IGST on importation, and the deductions from taxable income, all provided under 
 
811 Paras. 1.9-1.15 of this Report reflect the procedural background regarding the single meeting issue. 
Our communi cations dated 22 January 2019 and 16  April 2019 to the parties set out the reasoning for our 
decision (Communication dated 22 January 2019 from the Panel to the parties concerning the issues of a 
single  substantive meeting and a partially open meeting (Ann ex D-1), paras. 2.1 -2.21, and in particular 
paras.  2.13, 2.15 and 2.20; Communication dated 16 April 2019 from the Panel to the parties concerning the 
Panel's  Working Procedures and Timetable, (Annex D -3)). 
812 India's first written submission, para. 79.  
813 Communication dated 22 January 2019 from the Panel to the parties concerning the Panel's terms of 
reference, the applicability of Article 4 of the SCM  Agreement, and the statement of available evidence, 
(Annex  D-2), paras. 3.1 -3.13.  WT/DS541/R  
 
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  the SEZ Scheme, are subsidies contingent upon export performance, inconsistent with 
Articles  3.1(a) and 3.2 of the SCM Agreement ; 
d. the exemptions from customs duties on importation under Conditions 10, 21, 36, 60(ii) 
and 61 of DFIS are subsidies contingent upon export performance, inconsistent with 
Articles 3.1(a) and 3.2 of the SCM Agreement ; and  
e. the duty credit scrips awarded under MEIS are subsidies contingent upon export 
performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . 
8.2.  Further, we reject the United States' claim s that the exemption from central excise duty on 
domestically  procure d goods under the EOU/EHT P/BTP Schemes and the exemptions from customs 
duties on importation under Conditions 28, 32, 33, and 101 of DFIS are subsidies contingent upon 
export performance, inconsistent with Articles 3.1(a) and 3.2 of the SCM Agreement . 
8.3.  Pursuant to Article 3.8 of th e DSU, in cases where there is an infringement of the obligations 
assumed under a covered agreement, the action is considered prima facie  to constitute a case of 
nullification or impairment of benefits. We conclude that, to the extent the measures at issue  are 
inconsistent with the SCM Agreement , India has nullified or impaired benefits accruing to the 
United  States under this agreement.  
9  RECOMMENDATIONS  
9.1.  Pursuant to Article 4.7 of the SCM Agreement , if the measures in question are found to be 
prohibited subs idies, the panel must "recommend that the subsidizing Member withdraw the 
subsid[ies] without delay". Accordingly, we recommend that India withdraw, without delay, the 
subsidies we have found to be inconsistent with Articles 3.1(a) and 3.2 of the SCM Agree ment. 
9.2.  Article 4.7 further requires a panel to "specify in its recommendation the time -period within 
which the measure  must be withdrawn".  
9.3.  We recall that Article 4.7 is a "special or additional rule or procedure", which prevails over the 
rules and procedur es of the DSU to the extent they conflict.814 Article 4.7 departs, among others, 
from Article 21.3 of the DSU: in particular, "in contrast to Article 21.3(c) of the DSU, the use of 
the term 'without delay' in Article 4.7 constrains the latitude  available to a panel in specifying the 
time period under that provision".815 
9.4.  At the same time, Article 4.7 itself does not prescribe "a single standard or time period 
applicable in all cases".816 A panel must determine what would constitute withdrawal "without 
delay" takin g into account the relevant facts and circumstances of the case817, i.e. "typically … the 
nature of the measure(s) to be revoked or modified and the domestic procedures available for 
such revocation or modification".818 
9.5.  On this basis, many panels called upon t o determine the appropriate time period under 
Article  4.7 have considered that, for the measures before them, this time period was 90  days.819  
9.6.  Other panels have considered that a different time period was appropriate for the measures 
before them. In US – Upland Cotton , the panel recommended withdrawal of the measures either 
within six months from adoption of the panel report, or by 1 July 2005 (which was a little less than 
ten months from the date of circulation of the panel report), whichever was earlier.820  
 
814 Article 1.2 and Append ix 2 of the DSU. See also e.g. Appellate Body Reports, Brazil – Taxation , 
para. 5.445.  
815 Appellate Body Reports, Brazil – Taxation , para. 5.447. (emphasis added)  
816 Appellate Body Reports, Brazil – Taxation , para. 5.446.  
817 Appellate Body Reports, Brazil – Taxation , para. 5.454.  
818 Appellate Body Reports, Brazil – Taxation , paras. 6.43 and 5.446 . 
819 E.g. Panel Reports, Korea – Commercial Vessels , para. 8.700; Canada – Aircraft Credits and 
Guarantees , para. 8.4; Canada – Autos , para. 11.7; Australia – Automotive Leather II , para. 10.7; Brazil – 
Aircraft , para. 8.5; and US – Tax Incentives , para. 8.6.   
820 Panel Report, US – Upland Cotton , paras. 8.3(b) and 8.3(c).  WT/DS541/R  
 
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  9.7.  In US – FSC, the panel took note that withdrawal of the prohibited subsidy required 
legislative action, and also that the measures were part of the respondent's tax legislation, which 
was revised every year with effect from the beginning of each fiscal ye ar.821 On that basis, the 
panel considered that withdrawal would be "without delay" if it took place no later than the start of 
the fiscal year that would follow completion of the appeal process.822 This was a year from the 
expected circulation of the panel re port, and about half a year from the time at which the panel 
expected adoption of the report in case of an appeal.823 
9.8.  Turning to the case before us, the United States has requested us to specify that the 
inconsistent measures must be withdrawn within 90 days  from the DSB's adoption of the 
recommendations and rulings in this dispute.824  
9.9.  On the basis of our factual findings, above, we note that  withdrawal of the prohibited 
subsidies under  the EOU/EHTP/BTP Schemes, EPCG Scheme, and MEIS , appears to require, at 
least, amendments to the FTP. According to its preamble, the FTP is adopted by "the Central 
Government", in the "exercise of powers conferred by Section 5 of the Foreign Trade 
(Development & Regulation) Act, 1992".825 Thus, on the face of the FTP, it appears t hat it is 
adopted, and that therefore it can be amended, by the Government on the basis of authority 
already conferred by India's legislature. In addition, withdrawal of these prohibited subsidies  may 
require amendments to certain other subordinated instru ments, such as the HBP, which, too, are 
administrative measures.  India's interim review comments confirm our understanding.826 
9.10.  India has also observed that modifying the FTP requires "consultations with various 
stakeholders", including at central and state g overnment level, and "an express approval from 
India's cabinet"827; that "the next review of the FTP is scheduled for April 2020"828; and that 
modifications to the FTP "may have to be laid before the Indian Parliament for a period of 
30 days" .829 
9.11.  We consider that adoption by the Government (as opposed to the legislature) of 
amendments to the FTP and related administrative measures, in the exercise of powers already 
conferred upon the Government by India's legislat ure, can be achieved within 90 days , also taking 
into account the consultation of stakeholders . As for the fact that the next review of the FTP is 
scheduled to come into effect in April 2020, we consider that this may further facilitate withdrawal 
of the prohibited subsidies in question. We  also consider however that the possible need to lay the 
amendments to the FTP before Parliament for 30 days requires that we include these 30 days in 
the time period within which the prohibited subsidies under the EOU/EHTP/BTP Schemes, 
EPCG  Scheme, and ME IS, must be withdrawn. For these prohibited subsidies, therefore, we 
consider that withdrawal "without delay" would be withdrawal within 120  days from adoption of 
the Report.  
9.12.  We therefore recommend that India withdraw the prohibited subsidies under the 
EOU/EHTP/BTP Schemes, EPCG Scheme, and MEIS, within 120 days from adoption of the Report.  
 
821 Panel Report, US – FSC, para. 8.8. See also ibid. para. 4.1362.  
822 The complainant, while a ccepting such a timeframe in case of an appeal, had asked the panel to 
state as an alternative timeframe, in case of no appeal, the start of the fiscal year following adoption of the 
panel report. (Panel Report, US – FSC, para. 4.1362).  
823 Panel Report, US – FSC, para. 8.8 ("this Report is not scheduled for circulation to Members until 
September 1999 (and, if appealed, might not be adopted until as late as early spring 2000)"). The panel report 
was actually circulated on 8 October 1999.  
824 United States' firs t written submission, para. 164; second written submission, para. 179. India set 
out its arguments on the time period for withdrawal in its written request for review of the Interim Report and 
in its oral statements at the Panel's interim review meeting wi th the parties (India's request for review, 
paras.  88-93; India's opening statement at the interim review meeting of the Panel with the parties, para. 43; 
India's closing statement at the interim review meeting of the Panel with the parties, paras. 9). The  
United  States commented on India's interim review arguments in this regard in United States' comments on 
India's request for review, paras. 59 -65. See also Annex A -2, section 9.2.  
825 Preamble of the FTP.  
826 India's request for review, paras. 89 -91.  
827 India's request for review, para. 90.  
828 India's request for review, para. 91.  
829 India's request for review, para. 91.  WT/DS541/R  
 
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  9.13.  Turning to the prohibited subsidies under DFIS, on the basis of our factual findings, we note 
that their withdrawal appears to require amendments to Notification No. 50/ 2017. According to its 
terms, Notification No. 50/2017 is adopted by the "Central Government", in the "exercise of 
powers conferred by sub -section (1) of section 25 of the Customs Act, 1962 (52 of 1962) and 
sub-section (12) of section 3, of Customs Tariff Act, 1975 (51 of 1975)" .830 Thus, similar to our 
observation s in the preceding paragraph s, it appears from its face that Notification No. 50/2017 
was adopted and can be amended by the Government, on the basis of authority already conferred 
by India's legisla ture. Thus, for the prohibited subsidies under DFIS, we consider that withdrawal 
"without delay" would be withdrawal within 90  days from adoption of th e Report.831 
9.14.  We therefore recommend that India withdraw the prohibited subsidies under DFIS within 
90 days from adoption of the Report.  
9.15.  Turning to the SEZ Scheme , based on our factual findings, it appears that withdrawal of the 
measures we have found to constitute prohibited subsidies would require, at least, amendments to 
the SEZ Act (for the exemptions from customs duties on importation and exportation, and the 
deduction from taxable income), the Income Tax Act (for the deduction from taxable income), and 
Notification No. 15/2017 (for the exemption from IGST). While Notification  No. 15/2017, l ike the 
measures we have reviewed in the previous paragraphs, is adopted by the Government in the 
"exercise of the powers conferred" by the legislature, the SEZ  Act and Income Tax Act are, 
themselves, legislative acts. Their amendment, therefore, appears t o require action by 
India's  Parliament. Withdrawal of the measure may additionally require amendments to certain 
other subordinated acts, such as the SEZ Rules, which were adopted by the Government in the 
exercise of powers conferred by the SEZ Act.832 India's interim review comments confirm our 
understanding regarding the SEZ Scheme.833  
9.16.  Because withdrawal of the prohibited subsidies under the SEZ Scheme thus appear s to 
require amendments to legislative acts of India's Parliament, we do not consider it "practi cable"834 
to envisage withdrawal within 90 days. Instead, we consider that withdrawal "without delay" would 
be withdrawal within 180 days from adoption of th e Report.  
9.17.  During the interim review, In dia commented that modifications to tax legislation are " mostly  
made through a general budget ", and that such modifications " can be implemented at the start of 
the next fiscal year".835 On this basis, while India's comments concede that 180 days suffice as a 
minimum period for withdrawal836, India asked that, after expiry of 180 days  from adoption , the 
time period for withdrawal additionally  include any amount of time running until the beginning of 
India's following fiscal year.837 Depending on the date of adoption of the Report, this could result in 
a time for withdra wal ranging from 180 to 544 days.838  
9.18.  Given the degree of uncertainty and potential delay that this proposed formula would 
introduce, and given that India's own comments manifest that it is not strictly necessary to 
implement withdrawal as part of India's ge neral budget and with effect from  the start of a new 
fiscal year839, we consider that acceding to India's request would be incompatible with the 
requirement of Article 4.7 that we recommend withdrawal "without delay".  
9.19.  Therefore, we recommend that India with draw the prohibited subsidies under the 
SEZ Scheme within 180 days from the date of adoption of th e Report.  
__________  
 
830 Notification No. 50/2017, (Exhibit USA -36), p. 1.  
831 In their comments on the Interim Report, both parties appeared to accept this assessment.  
India's  request for review, para. 93; United States' comments on India's request for review, para. 65.  
832 Preamble of the SEZ Rules . 
833 India's request for review, para. 92.  
834 Panel Report, US – FSC, para. 8.8.  
835 India's request for review, para. 92 . (emphasis added)  
836 Annex A -2, para. 9.11, with reference to India's request for review, para. 93.  
837 India's request for review, para. 93. India indicated that its fiscal year starts on 1 April.  
838 Annex A -2, para. 9.8.  
839 Annex A -2, para. 9.11, with reference to India's request for review, para. 92.